The triple witching event is already upon us.
It’s the first one this year.
With so much uncertainty and volatility occurring in the markets, what can we expect from this year’s triple witching event?
Well, it can go one of two ways and I’m going to break it down below.
Welcome to Franknez.com – if you haven’t heard the term triple witching event before you’re about to learn something new in the markets. This event only happens three times in the entire year.
Let’s dive right into it!
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What is the ‘triple witching event’?
The triple witching event is an event that occurs only three times a year, and it’s when all options contracts expire at the same time.
This is the time where traders will have to decide if they will rollover their contracts and maintain an open position on their bets, or if they will close those bets.
We can expect this event to happen on March 18th, June 17th, and September 16th of this year.
Whether investors are buying or selling, both futures and options contracts expire on this day.
This is what’s referred to as the triple witching event.
Options traders also find out if their options expire in or out of the money.
Will stocks go up or down?
Whether your portfolio goes up or down will depend heavily upon how many calls or puts expired in the money.
The price of securities won’t reflect until the following week when those ‘in the money’ expired calls or puts have been accounted for.
The triple witching event tends to be day of high volatility due to a surge in volume and trading activity.
If short sellers’ contracts expire in the money at lower bets, then we can expect the markets to be lower the following trading week.
It’s the contrary for investors going long on their bets.
If stocks outperform the market and a variety of calls expire in the money, then we can expect more bullish price action to follow.
Enough bull momentum could trigger a gamma squeeze, or a series of gains in a security.
Continued momentum could cause short sellers to a) close their positions or b) start a new short.
Trading is about to get riskier
During the triple witching event trading gets riskier.
See, short sellers are using all the tactics they can to ensure their call option needs are met.
Retail on the other hand is buying the dips.
However, with today’s global news affecting the entire markets, uncertainty only increases.
Does the triple witching event matter on the long run?
Not really.
But it can play in favor of traders whose bets expire in the money.
Are you playing with options?
Leave a comment below.
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