One Source of Volatility You Can Prepare For…
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There are plenty of reasons why US stocks are volatile at the moment (to get a better idea, check out these articles by Brian Hunt, Rick Pendergraft, and Jeff Clark). But lurking behind the chaos in the banking sector and wildly fluctuating commodity prices are ‘witching days.’These occur when various stock options expire - sometimes simultaneously - creating extra volatility in the market. Rick Pendergraft says short-term investors can profit from staying aware of when these days are coming…
If you’ve spent some time in the investing world, you have probably heard the terms “triple witching” and “quadruple witching.” But that doesn’t mean you know what they are or why they should concern you as an investor.
A triple witching day is when stock options, stock index options, and stock index futures all expire on the same day. A quadruple witching day is when stock options, stock index options, stock index futures, and single stock futures all expire on the same day.
These days happen on a quarterly basis, and the financial media usually makes a big deal out of it. Why? Because the expiration of these derivatives can, and will, cause increased volatility in the market.
If you are a short-term trader, you certainly need to be aware of witching days. They occur on the third Friday of March, June, September, and December. If you are a long-term investor, triple witching and quadruple witching days will have little impact on you. Just be aware that when they happen, the market may get a little crazy. When you’re prepared for some volatility, you won’t overreact.
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Tags: Brian Hunt, Jeff Clark, Rick Pendergraft, US stocksAbout the Author
Rick is currently the Editor-in-Chief of The ETF Options Trader and the Triple Wave Investor. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. He lives near Delray Beach, FL with his wife and three children.
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