Triple Witching is a term that embodies derivative trading. In its purest form, it is when 3 derivatives expire at the end of a quarter. Translated it means all Futures and Options contracts on listed exchanges expire in the final quarter of each year. So a Double Witching would mean Futures and Options expire in the other 3 Quarters versus the final one. But the vaunted Triple Witch can only occur in Q4, or the December expiration. All other quarterly expirations (not the last one) are Double Witch…hope your not confused.
In the early days of derivatives the volatility was staggering in year end expirations. I wrecall standing outside the S&P Futuires Pit amazed at the final movement in Index Pricing. To say it was purposely manipulated would be an understatement. It took a few years for market participants to learn how to play these expiration’s, and now as time has passed and technology has taken over with High Frequency Trading (HFT) each and every day can be a Triple Witch. Today’s year end volatility will go virtually unnoticed. The Triple Witch is not what she used to be simply because fewer institutions carry large Prop desk positions. This days were left with Gordon Gekko and Mike Milkin.
Most commodity futures contracts expire into delivery of whatever the contract is for. An example is if you were long a pork belly futures contract at the Chicago Mercantile Exchange (CME), you would get 40,000 pounds of bacon delivered to your door. If you were long a lumber futures contract, you would 40,000 board feet of Lumber. If you were long Wheat Futures, you would get a train car load of wheat. This is where the trading floor term “car” came into the lexicon. It meant rail cars full of goods, when you were long one contract.
Floor trading and execution have gone completely electronic and there is very little open outcry to create the volatility markets experienced in the early days of the Triple Witch. Nowadays, she is an older electronic witch with smooth edges riding her broom and looking for Toto, while those scary Monkeys dot the sky.
Good riddance Triple Witch, but know I miss the days of Gordon Gekko and Bud Fox..
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