Should Dow Investors Fear the Quadruple Witching Hour?

Four times a year, other markets have a big impact on the Dow Jones Industrials. Find out more about it.

Jun 20, 2014 at 1:30PM

Today is looking an unremarkable day for the stock market, even as major U.S. indexes push their all-time highs. As of 1:15 p.m. EDT, the Dow Jones Industrial Average (DJINDICES:^DJI) was up just 24 points. One factor that many Dow investors are watching closely is the so-called "quadruple witching hour," which is set to occur this afternoon. Yet should you really be concerned with this occult piece of market jargon? Let's take a closer look at what quadruple witching is and what it means for your investing.


Source: Wikimedia Commons.

A derivative concept
The idea of the witching hour comes not from the Dow Jones Industrials or the broader stock market, but rather from various types of derivatives. In particular, you can buy options on a wide variety of individual stocks as well as stock market indexes, and those options are typically available for every calendar month. These options are usually set to expire on the third Friday of the month, although more recent innovations in the options market have introduced expirations on different weeks. Nevertheless, these traditional options are the most commonly traded.

In addition to options, futures contracts track the major stock market indexes, including the Dow Jones Industrials and the S&P 500 (SNPINDEX:^GSPC). The introduction of single-stock futures added a fourth set of derivatives to consider. Four times a year -- on the third Friday of March, June, September, and December -- all four of these options and futures contracts expire at the same time.

Does witching matter anymore?
The concern that many Dow investors have about quadruple witching is that as short-term traders rush to consolidate their derivatives positions before they expire, the resulting turbulence can carry over into the stock market. Derivatives traders often hedge their positions with actual stock holdings, and so when they close derivatives positions, they also close those hedges with purchases or sales of certain stocks.

But when you look at recent quadruple-witching days, there hasn't been the same level of volatility for which the event was once famous. In March, for instance, the Dow lost a mere 30 points on its quadruple witching day. December's quadruple witching resulted in a gain of 42 points. Similarly, the year-ago event in June saw a rise of 41 points.

Of course, there have been instances of big moves on quadruple witching day. Last September, the Dow dropped 185 points when futures and options expired. But overall, the recent trend has been toward less volatility, and although you can still see volume spikes on expiration days, they aren't as extreme as they once were.

Even when short-term traders create momentary disruptions to the Dow, they don't have a lasting impact on the long-term movements that stocks make based on fundamental factors. As a result, Dow Jones Industrials investors who focus on the long run don't need to fear quadruple witching days at all.

Warren Buffett's biggest fear is about to come true
Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers