A small post dedicated to tomorrow's triple witching hour and those further ahead...

Triple what?

MoneySense Canada (byline: "for Canadians who want more") offer this definition:

"Triple witching is a term coined in the 1980s to explain the volatility associated with quarterly expirations of stock options, index options and index futures. Triple witching occurs on the third Friday in March, June, September and December."


The volatility of triple witching Fridays is due to (and confined to it based on the data below) extra volume: stock options that are exercised create large additional volume; as does the index arbitrage typically associated with the trading of big equity positions that this engenders. The data this scribe analysed showed Freaky triple witching Fridays can average close to 25% more volume than an ordinary trading day (1990-2005).

Yet the same 15 year's worth of data covering the S&P500, the Dow and the Dax does not reveal obvious differences in price variance at the aggregate level. That is, the daily points range (high minus low as a percentage of close) of all days versus triple witching days displays similar average, standard deviation, median, skew and kurtosis characteristics.

What the data does show, however, is an interesting stat for the Dax:

The pattern is more pronounced for the S&P500 (64:36); and less for the Dow (52:48).

Not a tip or trading recommendation. Only context.

Sources: Yahoo Finance; MoneySense Canada

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