Monday, October 25, 2010
Triple Witching” has nothing to do with Halloween not the Nov. 2 election, for that matter.
James Nolen, distinguished senior lecturer of finance in the McCombs School of Business, explains its meaning in the equally spooky world of business and finance in this post, which can be found on the McCombs Web site.
Four times a year, an unholy occurrence casts a spell over the stock market, stirring up mayhem and mischief most foul. On the third Friday of March, June, September and December the contracts for index futures, index options and regular stock options all expire. All that activity of closing out contracts tends to spook investors, Nolen says.
Those days—known as triple witching—threaten to increase volatility in the market. For instance, as the contracts expire on index funds (bundles of different stocks meant to be representative of the overall market), fund managers may close out their positions or adjust their portfolios.