Triple Witching

  

Categories: Derivatives

No, this one doesn't describe that scene from Macbeth.

Triple witching has to do with the simultaneous expiration of various derivative contracts. Four times a year, stock index futures, stock index options, and options for individual stocks all expire on the same day. It happens on the third Friday of March, June, September, and December (so, once a quarter, if you're thinking in corporate time).

These expirations can cause some fluctuations in the stock market, as options and futures get exercised, triggering some transactions that don't have anything to do with whatever else is happening on that Friday. It's like hitting turbulence in a plane. Things get bumpy for a bit (in this case, especially in the last hour of the trading session), but it doesn't impact long-term trends.

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Finance: What Is a Call Option?25 Views

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finance a la shmoop. what is a call option? option? option, where are you? okay

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yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]

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is the right to call or buy a security. the concept is easy the math is hard.

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you think Coca Cola's poised for a breakout as they go into the new low

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calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]

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call option for $1. well that call option buys you the right

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to then buy coke stock at 55 bucks a share anytime you want in the next

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hundred and 20 days. so let's say Coke announces its new sugarless drink flavor

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zero it's two weeks later and the stock skyrockets to fifty eight dollars a

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share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]

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so you buy the stock and you're all in now for fifty five dollars plus one or

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fifty six bucks a share and your total value is now fifty eight bucks. well you

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could turn around today and sell the bundle that moment, and you'll have

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turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]

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stock not skyrocketed so quickly well you would have lost everything. still you

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lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]

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options. as for Coke flavor zero turned out to be nothing more than canned water.

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