Triple witching is also referred to as freaky Friday. It consists of the quarterly expiration of stock options, index futures, and stock index options. Stock options give the investor a right but not an obligation to buy or sell a stock at a particular price. The stock index options give the investors a right to buy or sell an underlying stock index ( stock index is the measurement of a stock market to compute the return or profits on a stock) for a defined period of time and these stock indices are based on S&P 500 evaluations. The index future is used by traders to buy or sell a financial index today which may be settled at a future date. Here, there is an agreement to buy or sell a stock at a predetermined price at any time which is specified in the future (also known as futures contract).
Triple witching occurs on the third Friday of every third month, i.e., March, June, September, and December. Triple witching results in the volatility of trading as it causes big swings in the market. Traders have to decide if they will maintain their futures contracts or close their positions before the expiration. Due to the multi-directional movement of stocks in the market, the market becomes volatile and unpredictable in the short period.
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