VOLATILITY: Today is one of the biggest market volume days of the year. The ‘triple witching’ US futures and options (F&O) expiry drives volumes that are near five times normal levels (see chart). This has become even bigger as retail-driven options activity has surged in recent years, and as major stock indices also rebalance on the same day. It could worsen an already very big and volatile week of heavy macro data, Central Bank meetings and comes before the Christmas holidays typified by anemic trading volumes. There is evidence ’triple witching’ can add to short term volatility, and take away from performance next week, but with little lasting market impact.
WHAT IT IS: The third Friday of March, June, September, and December see’s US stock index futures and options, and individual stock options, all expiring together. This will drive a lot of portfolio rebalancing, contract rollovers and expirations. and often more market volatility. It used to be called ‘quadruple witching’ until the 2020 end of single stock futures trading. A number of major indices like S&P US and FTSE Global also take advantage of this extra volume to do their quarterly rebalances, and NASDAQ-100 its annual. This just further adds to the volume traded.
MORE IMPORTANT: Futures and options activity soared in recent years, and this has continued into 2022. The volume of US exchange-traded options has risen 26% comparing September value traded with the December of 2021. Similarly, futures volumes are up 20%, according to the BIS. Much of this has been driven by the rise of retail investors, who are showing little sign of retreating from markets despite recent weakness. There is little evidence triple witching sees down markets on the day itself, but may lead to some modest weakness in the following week.
All data, figures & charts are valid as of 15/12/2022