What does the term “triple witching hour” mean?
Triple witching is the third Friday of March, June, September and December, when options, index futures, and options on index futures expire concurrently. Massive trades in options and underlying stocks by hedge strategists and arbitrageurs can cause above average volume and added market volatility. Derivative contracts based on stock indices do not generally involve the actual exchange of any underlying security, but rather are cash-settled based on some fair market value at a specified time. Many arbitrage strategies involve simultaneous, offsetting transactions in a basket of stocks representing an index and a derivatives contract on the index. When the derivatives contract reaches expiration, the usual practice is to buy or sell the basket of stocks at the exact price used for cash-settling the derivatives contract. In the early 1980’s when organized futures and options exchanges began trading standardized contracts based on stock indices, that final value of those indices for cash
