New York Stock Exchange. Image source: Official White House Photo by Andrea Hanks
Today is an exceptional day for all of you stock market buffs. Its Quadruple Witching Day! But what exactly is that?
There are actually 4 quadruple witching days throughout the year - on the third Friday on the last month of each fiscal quarter. Sound mystical enough?
Well, there is nothing otherworldly behind it, apart from the symbolic meaning of the word "witching". Some mythologies believe that witches roam free in the world at 12 am as the new day dawns. In the stock market, 12 am marks the new day, and on Quadruple Witching days, this is when the 'volatility spirts' are left to roam free.
The quadruple witching day refers to the four times a year when the contracts of stock index futures; stock index options on stocks; stock options and single stock futures for the previous quarter all expire.
It is a rollover date when longer-term traders adjust their positions according to the new market trends. In doing so, the heightened trading activity tends to cause momentary spikes in the underlying volume that is being executed. All of this causes temporary volatility outbursts.
In light of the recent developments relating to the coronavirus outbreak and the stock market rout, some analysts expect that today's quadruple witching day is going to bring about new rounds of volatility to the markets, as traders adjust their long-term positions accordingly.
This volatility could make trading after the US open today more erratic, so be careful with your positioning.
It is hoped that as the cycle is renewed today, longer-term traders would have had enough time to weigh in on the threat from COVID-19 and the economic fallout, which would make their new adjustments more intuned with the underlying market conditions.
This could potentially be the first step in the market's stabilization and the end of the selloff, provided that the traders transact appropriate orders.
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