Markets Add a Fourth "Witch"

That’s because Friday is the first quarterly “quadruple witching” session when the new single-stock futures are added to the already boiling brew of expiring equity options, stock index futures and stock index options, Reuters reported.

Options contracts on the S&P 100 index close on Friday. Individual stock options stop trading and settle at Friday’s close, Reuters said.

But traders do not expect single-stock futures expirations to have much impact because volume in the new market is still small. Single-stock futures are contracts that allow investors to buy or sell 100 shares of an individual stock at a certain price on a set future date.

“It will probably take a few more months before I even have interest,” said George Fontanills, president of Optionetics.com, an options education firm. “Larger institutional traders are going to need volume to get into and out of the trade.”

Triple Witching Big in Early 1980s

Triple witching first became a scary time for Wall Street in the early 1980s when trading took off in equity futures and options. The simultaneous expirations might have sparked wild gyrations in prices as traders rushed to close out or roll over positions, sometimes affecting underlying stock prices and the market, the Reuters story said.

By the late 1990s, the nervousness around triple witching faded as Wall Street got used to increased volatility due to the bull market and the technology boom.

As of December 17, a total of 248,546 contracts had changed hands on the two electronic exchanges since trading began, according to the Options Clearing Corp., Reuters said.

At OneChicago and Nasdaq Liffe, December futures contracts close and settle on Friday with physical delivery scheduled for December 26.

Nasdaq Liffe, a venture between the Nasdaq stock market and the London International Financial Futures and Options Exchange, lists December futures on 30 stocks and four exchange-traded funds.

One Chicago, an alliance of the Chicago Board of Trade, Chicago Mercantile Exchange and Chicago Board Options Exchange, offers December futures on 43 stocks and one exchange-traded fund.