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A quadruple witching is an event that occurs in the stock market from time to time. On these days, four important types of contracts all expire at the same time. A quadruple witching typically takes place four times each calendar year, with one episode of the phenomenon taking place during the final month of each quarter of the year.
There are four different contracts that expire when a quadruple witching occurs. First, contracts for stock index futures reach their expiration dates. Along with the futures, contracts on stock index options also expire. Stock options contracts are included in this type of event, as well as the expiration of single stock futures. This phenomenon occurs on the third Friday of each month that marks the end of an accounting quarter, which means that a quadruple witching will take place on the third Friday of each of the months of March, June, September, and December. On these dates, the hour before the stock market actually closes is sometimes referred to as the witching hour.
The phenomenon of a quadruple witching is a relatively new innovation in the market place. Before the days of single stock futures, a triple witching hour would take place on the third Friday of each month that wrapped up a quarter. There was also the phenomenon of a double witching, which would usually involve stock market index futures and either stock market index options or stock options that were scheduled to expire.
In providing a name for this type of market event, the use of the term witching hour is based on folklore regarding a short period of time when those who practice witchcraft were said to be especially powerful and active. Since the expiration of these four types of contracts exerts a great deal of influence on market performance as the trading day comes to an end, the term is generally thought to be both appropriate and descriptive.
The approach of a quadruple witching sometimes strikes fears in the hearts of investors. This is because the rate of volatility connected with the various securities involved tends to increase as the date draws near. Depending on the general condition of the marketplace, the outcome of this sort of market phenomenon may in fact be positive for a number of investors. For this reason, fearing the advent of a quadruple witching is not necessarily the best approach, although there is certainly the need to project the impact that the event will have on the market, and arrange investment activity accordingly.