Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Witching Hour

What it is:

The witching hour is the last hour of the trading day.

How it works (Example):

The witching hour occurs between 3 and 4 p.m. EST. This is when traders often rush to close out their positions, and thus trading volume can be high.

On quadruple witching days, and especially during the witching hour, many investors attempt to unwind their positions in their futures and options contracts before the contracts expire. (Quadruple witching refers to the day on which S&P futures, S&P index options, stock options, and stock futures expire.) This activity frequently includes repurchasing contracts and closing out other positions meant to hedge against these contracts.

Why it Matters:

Witching hours are usually accompanied by considerable volatility in trading volume and stock and derivative prices. As a result, investors can anticipate and plan for the potential effects of these relatively turbulent trading days.

Although index futures and options generally share simultaneous expirations on the third Friday of every month, quadruple witching days only occur on the third Friday of every March, June, September, and December. The last hour of these trading days, from 3 to 4 p.m. EST, is referred to as the quadruple witching hour.

Quadruple witching is similar to triple witching, which only includes the expirations of index futures, index options, and stock options.