Witching Hour: What it Means, How it Works

What Is the Witching Hour?

The witching hour is the last hour of trading on the third Friday of each month when options and futures on stocks and stock indexes expire. This time is when there are likely heavier trading volumes as traders close out options and futures contracts before expiration. Positions are then typically reopened in contracts that expire at a later date.

Key Takeaways

The witching hour is the last trading hour before options or other derivatives contracts expire.
There is ordinarily a higher trading volume as investors rush to close or roll positions.
Double and triple witching refer to the expiration of two or three types of derivative contracts on the same day.

Understanding Witching Hours

The witching hour is the final hour of trading before the expiration of derivatives contracts. More often, traders will use terms such as “triple witching,” which is the expiration of stock options, index options, and index futures on the same day. This event occurs on the third Friday of March, June, September, and December.

When single-stock futures were permitted to trade in the U.S. between 2002 and 2020, they expired on the same quarterly schedule, giving rise to “quadruple witching.” Meanwhile, double witching occurs on the third Friday of the eight months that aren't triple witching; the expiring contracts are options on stocks and stock indexes. The activity during monthly witching hours is related to rolling out or closing expiring contracts to avoid the expiration and having to buy the underlying asset. Due to imbalances that could happen when these trades are placed, arbitrageurs could look to profit from the resulting price inefficiencies.

Reasons to Offset Positions

The primary reason for the increased action on witching-hour days is that if the contracts are not closed before expiration, that could mean having to buy or sell the underlying security. For example, futures contracts that are not closed require the seller to deliver the specified quantity of the underlying security or commodity to the contract buyer. Options that are in the money, that is, profitable, may mean the underlying asset is exercised and assigned to the contract owner. In both cases, if the contract owner or contract writer can pay for security to be delivered, the contract must be closed out before expiration.

Rolling out or rolling forward, meanwhile, is when a position in the expiring contract is closed and replaced with a contract expiring at a later date. The trader closes the expiring position, settling the gain or loss, and then opens a new position in a different contract at the current market rate.

Opportunities for Arbitrage

Besides the increased trading, the witching hour can also result in price inefficiencies and, hence, arbitrage opportunities. Because of the heavy volume of trades coming in quickly, traders seek to profit from even slight price imbalances.

For example, contracts representing large short positions (those taken expecting the security price to drop) may be bid higher if traders anticipate that the contracts will be bought to close positions before expiration. When this happens, traders may sell contracts at temporarily high prices and then close them out before the end of the witching hour. Alternatively, they might buy the contract to ride the wave up, then sell once the buying frenzy slows down.

The Witching Hour and Triple/Quadruple Witching

Triple- and quadruple-witching days occur when three or four of the following expire: stock index futures, stock index options, single-stock options, and options on stock index futures. Triple witching happens four times per year, but quadruple witching is rare. The concentration of expiring contracts on these dates can catalyze higher market volatility and heavy trading volumes.

Triple-Witching Dates

Triple witching occurs on the last Friday of each trading quarter (i.e., March, June, September, and December). The final triple witching for 2023 is on Dec. 15. The triple witching dates in 2024 are March 15, June 21, Sept. 20, and Dec. 20.

As contract expiration deadlines approach the witching hour, trading activity usually surges as market participants rush to close or roll over positions before it's too late. Thus, volatility frequently spikes during this frenetic final trading hour across the derivatives markets and their underlying assets, as speculative plays and hedging activities spill over to equities to whip up the market further. So, while witching days stand out for active trading, the last witching hour stands out even more as the frenzy hits a maximum before the inevitable expiration and settlement activity in the moments ahead of the stock market close.

Why Does Trading Volume Tend to Spike During the Witching Hour?

The concentration of expiring contracts simultaneously across asset classes encourages a spike in trading activity from those closing or rolling over positions, those speculating on last-minute volatility or dynamically hedging, and those taking advantage of fleeting mispricing. This combination inevitably leads to the surge during the witching hour.

Why Is it Called the “Witching Hour"?

In folklore, the “witching hour” refers to a time at night (usually midnight) associated with supernatural events, when witches, demons, and ghosts are thought to be most powerful.The name “witching hour” was likely chosen in the financial context because of the heightened volatility and increased trading volume, which often occurs at heightened levels before the stock markets’ version of midnight, the end of the trading day. As these derivatives reach their expiration, traders are often scrambling to close, roll out, or fulfill their option and futures contracts, leading to a flurry of activity and sometimes unpredictable market moves, much like the chaos in store for some during the “witching hour” of folklore.

What Other Trading Hours Feature a Flurry of Trading Activity?

Market openings: The opening bell of major stock markets is typically the beginning of heightened activity. Traders react to overnight news and events, leading to a surge in trading volume. In the U.S., for example, the first hour of trading on the New York Stock Exchange (9:30 a.m. to 10:30 a.m. Eastern time) is particularly active.
Market close: Just before the closing bell, there's increased trading as investors adjust or close their positions before the end of the trading day. The U.S.'s last hour (3 p.m. to 4 p.m. Eastern time) is known for higher volumes and potential volatility.
Overlaps in major market hours: When the trading hours of major global markets overlap, such as between the New York and London stock exchanges, there can be an uptick in volume and activity because of the increased number of traders active simultaneously. Just like when there's increased trading of the witching hour, traders might seek arbitrage opportunities between local and shares of a foreign company traded in the U.S.
Release of economic data: The publishing of major economic reports for employment data, gross domestic product, and central bank decisions can trigger immediate and significant market reactions, leading to intense trading.

The Bottom Line

In financial markets, the “witching hour” refers to the last trading hour on the third Friday of each month, when options and futures on stocks and indexes expire. This period is characterized by heavy trading volumes and increased volatility as investors rush to close or roll over positions before the end of the trading day. Double, triple, and quadruple witching can occur when two, three, or four asset class contracts expire simultaneously. These events, particularly triple witching, can be particularly volatile because of the concentration of expiring contracts.

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