Quadruple Witching and how to benefit from the increased in volatility?

What is Quadruple Witching and how to benefit from the increased in volatility?

Quadruple Witching is a rare day where four asset class expire on the same day and it happens every year on the third Friday of the month of every quarter, in March, June, September and December. It is a day which Stock Index Futures, Stock Index Options, Stock Options and Stock Future expire together.

With four asset class expiring on the same day, there is a large number of derivative expiration going on and this leads to an increase in trading volume as traders, funds, institutes, hedgers and many others reset their position by readjusting their portfolios depending on market.

This will be especially obvious during the Quadruple Witching Hour, the last hour before market closes as many rushes in to reset their position just before the market closes, hence the obvious spike in volume.

A Crisis or Opportunity to You?

Though the increased in volume gives us tremendous opportunities, it also serves as a double edge sword for traders who have insufficient knowledge and skills, it can also mean higher losses.

You can have all the knowledge about how the market works, how volatility affects premiums, the fundamental of the companies and still lose money. I know, you must be thinking “NO WAY”, how is that even possible. You are right, I was once in your shoe.

You see, the level of skills and experiences comes into play here. These are probably the top main reasons why people lose money even having all the knowledge about the market. This is akin to fighting a war. If we look back into history, there are many cases where the one with the superior forces loses the battle to the one with the inferior forces. Why is this so?

You see, both fighting a war and trading the market is an Art and it can only be honed through experiences and many hours of reflecting. Have you ever met someone who has all the knowledge but doesn’t have the guts to place a real money trade?

Keep Calm and Meditate

This is a good time to review your portfolio to ensure that your positions are properly taken care of. As Warren Buffet said, it is madness to risk losing what you need in pursuing what you simply desire. The first objective that you should have is to preserve your current portfolio before embarking on new opportunities to profit.

Once you have taken care of your risk, it is time to see what is your sentimental about the market? Are you bullish? Are you Bearish? There are many ways to trade this market but here is the simplest method. You can simply Buy a Call or Put Option and wait out to see if things panned out in your direction.

With that been said, given the huge increase in trading volume, you should tread carefully and ensure that you continue to do proper sizing in your trades.