Making sense of market moves
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Triple witching might sound more like something you’d find in astrology than in finance, but the event can cause even more chaos than mercury in retrograde.
Tomorrow is triple-witching day, which is when stock options, stock index futures, and stock index options contracts expire on the same trading day—causing trading volume, along with volatility, to skyrocket. The event occurs quarterly on the third Friday of March, June, September, and December.
Triple witching directly affects investors who are trading derivatives like futures contracts and options, rather than regular old buy-and-hold investors. But even if you’re not planning on trading tomorrow, the event can still affect the performance of individual stocks. Traders often adjust their portfolios to prepare for potentially heavy trading volume and big swings in the market on a triple-witching day, ironically causing more volatility.
Triple-witching hour occurs in the last hour of trading on triple-witching days, so between 3pm and 4pm ET tomorrow, which is also when volatility tends to peak.
Will Nvidia bewitch investors?
The star of tomorrow’s triple witching is, to no surprise, Nvidia (NVDA). Shares of the chipmaker, which recently became the largest US stock based on its market cap, have seen unprecedented options trading, particularly call options, while shares have risen higher and higher. That sets the stock up for an especially volatile triple witching. About one third of outstanding options tied to Nvidia are going to expire tomorrow, according to MarketWatch.
On top of that, Nvidia’s stock split and its rebalancing into the $71 billion Technology Select Sector SPDR ETF (XLK) on Friday means that even more cash will be thrown at the company’s stock than usual, pouring yet more fuel on tomorrow’s fire.—LB