Legal Definitions - triple witching session

A triple witching session is a specific day in the financial markets when three types of financial derivatives expire simultaneously. These derivatives are: stock options, stock index options, and stock index futures. This event typically occurs on the third Friday of March, June, September, and December. Due to the simultaneous expiration of these contracts, triple witching sessions often lead to significantly increased trading volume and heightened market volatility as traders close out or roll over their positions.

• Example 1: Sarah, a derivatives trader at a hedge fund, spent the week leading up to the third Friday of September meticulously reviewing her firm's open positions in stock options and index futures. She knew that the upcoming triple witching session would require her to either close out expiring contracts or roll them over into new ones, anticipating a surge in market activity and potential price swings as other market participants did the same.

  Explanation: This illustrates how a professional trader prepares for the simultaneous expiration of multiple derivative types (stock options and index futures), which defines a triple witching session, and highlights the expected market impact of increased activity and price swings.

• Example 2: A financial news anchor reported, "Analysts are bracing for increased market volatility this Friday, as it marks a triple witching session. With billions of dollars in stock options, index options, and index futures set to expire, we could see significant price movements, especially in the final hour of trading, as institutional investors adjust their portfolios."

  Explanation: This example demonstrates how market observers identify and discuss a triple witching session, emphasizing its characteristic impact on market volatility and trading volume due to the simultaneous expiration of the three specified derivative types.

• Example 3: David, an individual investor who occasionally trades options, decided to avoid opening new short-term positions on the third Friday of June. He had learned that triple witching sessions often bring unpredictable price swings, making it a riskier day for speculative trades. Instead, he chose to observe the market's reaction to the expiring contracts from the sidelines.

  Explanation: This shows an individual investor's awareness of a triple witching session and how its anticipated volatility (resulting from the simultaneous expiration of options and futures) influences their trading strategy, even if they are not directly managing the expiring contracts themselves.