Every single year, there are four specific, completely predictable times where the profit potential for trading skyrockets.
It has nothing to do with earnings reports… or a release of economic data… or anything like that.
It’s much more advanced. Something the elite hedge funds of the world utilize for big trading returns.
But as advanced as this is on the surface, it’s actually simple to understand just why these times are so profitable and so predictable… And how anyone can use them to amplify their profits.
So, what exactly is it?
The Four Most Profitable Times to Trade, Every Single Year
This event is called “Quadruple Witching Day.” It’s led to some of the biggest trades of my career…
These days occur, like clockwork, on the third Friday of every March, June, September, and December. (That’s right… the next one is this Friday. More on that later.)
Why are these specific days so powerful? Because on these days, quarterly contracts on index futures, index options, stock options, and stock futures all expire on the same day.
This ignites a flurry of trading volume, as all the world’s money managers and hedge fund traders ramp up their activity. And the final result? A large spike in volatility across all asset classes… lasting all week.
And where there’s volatility, there’s a big trading opportunity. We’ll get to that in just a bit. First, it’s important to understand exactly what’s happening on this day.
Let’s break down the four markets that expire on Quadruple Witching Day:
Index futures, which allow investors to buy or sell a stock index with the contract settling on a future date. Investors use index futures to speculate on the direction of an index – buying if they believe the index will rise, and selling if they believe it will decline.
At expiration, the existing position is exercised, and a profit or loss is settled into the investor’s account in cash.
Index options, which control the right to buy/sell financial indexes, like the Dow or S&P 500, for a specific price and certain period of time.
Index options give investors the right, but not the obligation, to transact the index. The result of the trade is determined by the index price relative to the option’s strike price on the expiration date.
Index options don’t offer any ownership of the individual stocks. Instead, the transaction is cash-settled, giving the difference between the option’s strike and the index value at expiry.
Stock options, which give a buyer the right, but not the obligation, to complete a transaction of the underlying security on or before a specific date and for a preset price called a strike price.
Options can be purchased to speculate on a price increase or decrease of a specific underlying security – usually a stock or ETF.
Single stock futures, which are agreements to buy or sell a specific security at a determined price at a specified future date.
Single stock futures are obligations to take delivery of shares of the underlying stock at the contract’s expiration date. Each contract represents 100 shares of stock.
However, holders of stock futures don’t receive dividend payments, which are cash payments to shareholders from a company’s earnings.
So, how do all these expirations impact the market?
Due to the effects of option exercising, delivery, hedging, arbitrage, and speculative trading activity during Quadruple Witching Days… the most obvious effect is a dramatic increase in trading volume and volatility.
For example… During the last two years, volume in futures and options contracts was 30-50% higher on the day before quadruple witching Friday.
And on the last Quadruple Witching Day on September 20, the Volatility Index (VIX) – a measure of investor fear in the markets – spiked 19%.
In fact, the VIX has risen an average of 14% over the past five Quadruple Witching Days.
And on days where the market’s already experiencing volatility, the VIX spikes even more… On the December 21, 2018 Quadruple Witching Day, for example, the VIX rose over 27%.
So, we understand the effect Quadruple Witching has on markets…
But what’s crucial to understand is how to use it to identify winning trades.
How to Use Quad Witching Day
Quadruple Witching Day is a good time to trade options, in particular, because of what I just mentioned – volatility.
You see, when volatility rocks the markets, option premiums inflate. And when they do, it can amplify the potential gain in options trades.
Say you buy a put option – which gives you the right, but not the obligation, to sell a security at a specific price by a specific date. If the underlying security is trading below the strike price of that option, before the expiration date, the put is valuable.
But on volatile days like Quadruple Witching Days, option premiums tend to inflate more than normal. Add to this any downside action in a stock or index, and you could potentially make a huge profit trading puts.
Call options, essentially the opposite of puts in that they rise in value along with the underlying security, also tend to inflate in volatile environments. As I said last Thursday, call option premiums actually went up during the Black Monday crash of 1987 – even though the market was tanking. That was an extreme scenario. But it’s true that on especially bullish days, volatility can rise – and call option premiums along with it.
And the best way to take advantage of this added volatility is to buy options dated on Quadruple Witching Day.
What to Trade?
The next Quadruple Witching Day is this Friday, December 20. And I know we’ll be taking advantage all this week in my brand-new option trading advisory, The Opportunistic Trader.
Out of respect for my subscribers, I can’t say what we’ll be trading. But I will leave you with one important tip…
The best time to trade options, in my view, is in the week leading up to Quadruple Witching Day – not the day itself. That’s because when it comes to individual stock options, the option may expire and take you out of the trade whether you want to or not.
Keep all this in mind as you trade this week. If you implement a good strategy… have a mentor to guide you… or earned the extra risk with a string of good trades…
You might just find a home-run pitch headed right down the center.
Larry Benedict, editor, The Opportunistic Trader
P.S. There’s a specific stock I like to utilize during these volatile times, too. And if we get the moves I’m looking for, it could be a seriously profitable week…
To learn how you can access my full report on Quadruple Witching Day, including the ticker of one of my favorite stocks to trade this week, click here.
In Case You Missed It…
This is something you will surely want to witness…
Market Wizard Larry Benedict attempted to generate $70,000 or more—in less than a day—just from trading.
Care to see for yourself if he pulled it off?
And how you could use his secret yourself, to generate $200,000 in the coming year?