Quad Witching Day – Bullish or Bearish? (Quadruple Witching Backtest)
Quad witching (quadruple witching) refers to the expiry of four financial derivative contracts on the same day: stock index futures, stock index options, single stock options, and single stock futures (the latter have low volumes and are most likely not a big factor). Our backtests indicate that the quadruple witching week shows strong returns, but the quadruple witching day shows returns much lower than on an average day.
Quadruple witching day – facts vs myths. Because the quadruple witching day is surrounded by presumable myths, we would like to dig deeper into these rare days that happen only four times per year. Is quadruple witching a volatile day? Is the volume higher than normal? Is it a bearish or bullish day? Do derivatives expiration lead to bearish or bullish movements in the last hour of trading? Is it a bearish or bullish week? What about returns the week after quadruple witching day? These are the questions we answer in this article.
Also, the week after quadruple witching shows negative returns due to exceptionally poor performances in June and September.
Financial derivatives are used for a wide variety of reasons: some use them to speculate, some investors add leverage to their portfolios, and other investors and traders use them for hedging purposes.
Supposedly, the expiration of all these contracts creates volatility and high volume due to repositioning. Options and futures are frequently used for hedging positions, among other things, and traders are forced to “roll over” contracts and others might face pin risk due to options assignments. Moreover, market makers are forced to cover positions, and arbitrageurs come in to balance any mispricings.
What is quad witching and when is it?
Quadruple witching happens four times per year during the options expiration week. The options expiration week is when the options expire and this happens on the third Friday every month. But four of those months are called quadruple witching. The day is also called quad witching.
Quad witching calendar (dates)
Quad witching is when all derivative contracts expire – all options and futures contracts expire on this particular day. This is in March, June, September, and December – four times per year.
When are the Quad Witching dates?
The quadruple witching dates in 2023 happen on these days:
- 17 March 2023
- 16 June 2023
- 15 September 2023
- 15 December 2023
The quad witching dates in 2024 happen on these days:
- 15 March 2024
- 21 June 2024
- 20 September 2024
- 20 December 2024
The quad witching dates in 2025 happen on these days:
- 21 March 2025
- 20 June 2025
- 19 September 2025
- 19 December 2025
The quad witching dates in 2026 happen on these days:
- 20 March 2026
- 19 June 2026
- 18 September 2026
- 18 December 2026
Is quad witching a profitable day?
It depends. We day traded stocks for over 15 years and the options expiration Friday was the best day of the month, and our strategy was mainly to “arbitrage” between certain stocks. However, the window of opportunity was slowly closing due to more computers and volume from more sophisticated institutional players.
We believe that the opportunities are even less on the stock indices, like NQ and ES, for example. The market is simply too big. But the backtests done in this article will shed some light on this.
How to backtest quadruple witching?
Options expiration week and quadruple witching are not the easiest strategies to backtest and need a few lines of code to count the Fridays in each month. We did it in Amibroker and the indicator we coded looks like this:
