Triple Witching or often also called Triple Expiration is a term that refers to the closing of the capital and futures markets. Triple Witching is the expiration of the stock trading session on the stock exchange on the third Friday that occurs in March, June, September and December. Expiration or the end of the stock market session along with the expiration of the trading session of the option contract and futures contract, it often causes the impact of movements or major changes in the stock market.
So stock options, stock index options and stock index futures expire quarterly 4 times a year from the same day. From the term Triple Witching, two related terms emerge, namely “Triple Witching day” and “Triple Witching hour”. Triple Witching Day refers to the day when the session of the three types of markets is closed, while Triple Witching Hour is the last hour before the closing of the three types of markets where in these last hours there is often an increase in volatility in the market due to many actions from investors such as closing trades, taking positions or offset their expiring trading positions by selling or buying the underlying security.
The term Triple Witching has changed recently and many investors have referred to the term as quadruple witching since the single stock futures contract was added in 2002 because the market also expires or expires on the same day. The term quadruple witching is actually more suitable to refer to the closing terms for the 4 types of markets, only the mention of Triple Witching is still more commonly used.
Triple Witching Correlation to price movements in the Forex market
There is no correlation between Triple Witching and the forex market because every time the third or fourth closing day occurs, the forex market is not affected, besides the volatility conditions during Triple Witching of the four types of markets are relatively volatile, sometimes showing high volatility but sometimes not. shows a significant change in volatility.
Even though the volatility in the 4 markets has increased 3-4 times higher than usual due to increased activity from the 4 types of markets, it is still not directly correlated with the forex market, even the capital market which has the most high volatility, namely the stock market is not directly correlated and affects the movement of the stock market. prices in the forex market significantly. Stocks and forex have an indirect correlation and tend to be less significant.
So the stock market and forex cannot be used as a correlation for analysis and tend to only be used as intermarket analysis related to fundamental analysis and market risk monitoring, especially market risk interest and low/high risk currencies such as safe havens for example. And that’s also the correlation with the stock market, then for the four types of markets that expire at the same time during Triple Witching Day, the indirect correlation is even smaller and has almost no major effect on price movements in the forex market.
The impact of Triple Witching on the stock market
In the world of options trading, there is something called the expiration date. For example, if a trader buys a call option for XXXX shares, the option will usually end in Triple Witching. So that some options traders can execute options or increase the option period (rollover).
When there are many options trading actors who execute options (future contracts) it means that there are many shares selling or buying transactions according to the agreed option contract. So don’t be surprised if there is greater volatility when the Triple Witching day comes, which makes stock prices strengthen or weaken quite significantly so that the value of the stock index also moves quite significantly.
Impact of Triple Witching on the Forex market
Still using the previous explanation, we know that there has been a mass execution of options (futures) when the Triple Witching day arrives. Traders who buy a call option on XXXX stock at a certain price will execute the contract and traders who buy a put option on XXXX stock at a certain price will exercise the contract.
If you are looking for the impact that Triple Witching has on the Forex market, there really is no right answer. Because of the impact of Triple Witching on the stock market, it is also impossible to predict whether the stock market will strengthen or weaken. There is even evidence to suggest that the stock market is not always volatile but can also move sluggishly during the Triple Witching day.
If the situation in the stock market is not clear, then there is no basis for explaining the impact of Triple Witching on the Forex market. My estimate is that the price on the Forex market will move as usual when entering the Triple Witching day, it can move more volatile or even move sluggishly without it being clear whether it will definitely move bullish or bearish.
conclution
Triple witching is the expiration of a stock option, stock index future, and stock index option contract simultaneously on the same day. It happens four times a year: on the third Friday of March, June, September and December. Since all three options classes expire on the same day, this can lead to increased trading volume and unusual price action in the underlying asset.
Similarly, double withcing occurs when two option classes expire on the same date, and quadruple withching when four classes expire.
Triple witching days generate trading activity and volatility because contracts left to expire may require the purchase or sale of the underlying security. While some derivative contracts are opened for the purpose of buying or selling the underlying security, traders seeking derivative exposure must only close, launch, or offset their open positions before the close of trading on the magic triple day.
Triple witching days, especially the last hour of trading before the closing bell, known as the “triple witching hour”, can result in increased trading activity and volatility when traders close, launch, or offset their expired positions.
Since 2002, with the inception of single stock futures, there have actually been four types of contracts expiring, meaning triple witching days are actually “quadruple witching”, although the term is not yet very popular.
There is no triple witching correlation with forex, because forex doesn’t have a timeframe, so trading can be done at any time as long as it lasts and there will be no closing day.
