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Witching Days: Do They Place The Market Under A Spell?

Halloween is still a long way away. But the options expirations event known as a witching day, which comes with its own sort of mystery, is never far off on the stock market.




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Witching days refer to sessions when multiple options and futures contracts expire simultaneously. Normally, options expire on the third Friday of each month. Witching sessions occur only four times a year, on the third Fridays of March, June, September and December. This is when stock index futures, stock index options, stock options, and single stock futures expire.

The expirations can have an important influence on the stock market. Witching days do not normally affect whether the market moves up or down. But they can have a pronounced impact on the session’s volume.

Witching Days And Options Expirations

Investors who follow Investor’s Business Daily and read the Big Picture know that daily volume is an important indicator, both for individual stocks and the overall market.

For this reason, being aware of when witching sessions occur is an important aspect of trading with the market — the M in CAN SLIM.

First, to clarify: Triple-witching has become something of an archaic term, obsolete since single-stock futures were thrown into the mix in 2002. This turned the old triple-witching sessions to quadruple-witching days. However, many seasoned traders, and even the venerable Stock Trader’s Almanac, continue to refer to the sessions under the traditional triple-witching label.


When It’s Time To Sell Your Favorite Stock


Friday is a regular options expiration day. The next quadruple-witching day occurs on June 18.

The most recent witching session, on March 19, was a mixed day for the market. The Nasdaq composite added 0.8% after executing a bullish reversal off early lows. The S&P 500 closed a fraction lower. The Dow Jones Industrial Average lost 0.8%.

Volume on the NYSE rose 199% above its 50-day average. On the Nasdaq, trade increased only 9% above its 50-day average, in what would likely have been a weak-volume session without options expirations.

This can factor significantly into gauging distribution days, making the difference between losses in busy or quiet trade. It also influences the following Monday, which goes up against a tough comparison to the busy witching-day trading volumes from the Friday before.

For individual stocks, options expirations volume can boost volume on powerful or a weak breakout.

FedEx Gets A Witching Boost

Williams-Sonoma (WSM) scored a breakout just before March’s witching session, on March 18, after reporting its fourth-quarter earnings. Shares jumped 18.5% on a 351% increase in volume. The next day, the witching Friday, shares rallied another 8% on a 279% volume increase.


Why This IBD Tool Simplifies The Search For Top Stocks


Again, there is no assurance that any of these volumes were specifically due to futures and options expirations. But in general, the market and individual stocks do see much higher volumes during the witching sessions. This makes this one more tool on the workbench for investors to be aware of, to understand and to use.

Find Alan R. Elliott on Twitter @IBD_Aelliott

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