In the financial world, a witching day is a day in which contracts for multiple types of options or futures expire on the same day. Since many contracts run on a quarterly basis, it is common for multiple classes of financial contracts to expire simultaneously, which can result in chaos on the trading floor. A witching day is characterized by extremely volatile markets, with traders trying to assess their situations and improve them before the magic period is over.
On a witching day, stock index options and stock options along with stock index futures and single stock futures may expire. When any two of these expire on the same day, it's known as a double witching day. A triple witching day involves the expiration of three, while quadruple witching days encompass all four. The last hour of trading on a witching day may be known as a witching hour, because it is commonly quite chaotic and sometimes a bit desperate.
Witching days occur on the third Fridays of March, June, September, and December. While the term “witching day” is primarily used within the world of finance, it sometimes crops over into the media and the more general population, especially when a witching day involves especially volatile trading. People who report on specific commodities may also discuss witching days as they explain radical price fluctuations and behavior which may seem erratic to people who are not familiar with the witching day concept.
Someone who plays his or her hand right can stand to profit on a witching day, especially if he or she is good at predicting which way the market will go. In other cases, people can take a loss due to moving too slowly or failing to anticipate an event. Novice traders especially may struggle on a witching day because events happen very quickly, and traders are notorious for their brutality to new members of the flock. Failing to keep up or fouling deals can be especially dangerous on a day of volatile trading, as some new traders learn to their chagrin.
The origins of the term “witching day” are a bit obscure. Some people suggest that since triple witching days were once the most common type, the term may be a reference to the three witches in the Shakespeare play Macbeth. This financial jargon may also simply reference the sense that a witching day is like a magical and almost surreal time, as traders struggle to get the upper hand to set themselves up for another quarter of successful trading. It may also be a back-formation from “witching hour,” a term commonly used to describe a brief window of opportunity.