Michael M. Santiago / Getty Images
The Key Takeaways
- On Friday, the triple-witching of three different derivatives could cause a spike in volatility on financial markets.
- As market participants wait with bated breath for a solution to fund the federal government past midnight, the final triple-witching occurs.
- Buy-and-hold retail investors don't have much to worry about with Friday's volatility, but the event, especially the final hour of the day, could provide active traders with opportunities.
On Friday, investors and traders were concerned with a number of issues. Wall Street, not only did the government threaten a shutdown Saturday morning but also anticipated triple-witching with its accompanying volatility.
The triple-witching is the simultaneity of expiration for index options, stock options and index futures. The event occurs on Friday the third of each month, March, June and September. Investors are often forced to extend or close their positions when triple-witching occurs. This can lead to a lot of volatility.
This Friday will mark the last triple-witch of the year, and comes only days after the biggest stock market sell-off for months. The S&P 500 tumbled 3% on Wednesday after the Federal Reserve pared back its forecast for interest rate cuts next year, noting that the inflation outlook had become more uncertain in recent months.
Stocks had been booming since Donald Trump’s reelection as President was announced last month. The stock market posted its biggest gains for the year last month and traded around records in the first part of December.
The Index Rebalancing Issue is also in the Focus
Friday’s triple-witching will also coincide with the rebalancing of several major indexes, including the S&P 500 and the Nasdaq 100. Software company Workday (WDAY) and asset manager Apollo Global Management (APO) will replace tech hardware company Qorvo (QRVO) and engineering firm Amentum Holdings (AMTM) in the S&P 500 effective Monday morning.
Also effective Monday, AI darling Palantir Technologies will replace Super Micro Computer’s AI servers (SMCI) and vaccine manufacturer Moderna’s (MRNA). These stocks may see high volatility and volumes on Friday.
For Buy-and Hold Investors, There is No Need to Worry
Investors who buy and hold don’t need to be concerned about triple-witching. While it can cause abnormal trading volumes or price fluctuations, they are unlikely to experience any major problems. Options and futures volatility should only last a short time. Wall Street also knows that price fluctuations can be accompanied with triple-witching. This means unexpected swings in prices are less likely to affect market sentiment.
The active traders are more motivated to pay attention to the market today. This is not just because it’s more likely that they own an expiring contract than your typical retail investor. In the last hour of the business day (the triple-witching hours), certain stocks can be less liquid. This can lead to increased spreads, and allow savvy traders to arbitrage the same asset at different prices on multiple markets.
Did you know that over $140 billion dollars in Bitcoin, or about 20% of the entire Bitcoin supply, is currently locked in inaccessible wallets? Or maybe you have lost access to your Bitcoin wallet? Don’t let those funds remain out of reach! AI Seed Phrase Finder is here to help you regain access effortlessly. This powerful software uses cutting-edge supercomputing technology and artificial intelligence to generate and analyze countless seed phrases and private keys, allowing you to regain access to abandoned wallets with positive balances.
