Next week marks triple witching Friday
Next Friday marks the third Friday of the month, which means it’s expiration week for equity options. I’m old enough to remember when the third Friday was the only expiration date for options each month, but with the rise of weekly expirations for many stocks, every week now feels like expiration week.
However, the third Friday of March, June, September, and December still stands out. These months are known for triple-witching, where equity options, stock index options, and stock index futures all expire simultaneously. Pundits often say this can lead to heightened market volatility. This week I’m focusing on market performance during both regular monthly expirations and triple-witching weeks, which continue to see the highest level of options activity.
Poor Performance & Triple Witching Weeks
The table below shows S&P 500 Index (SPX) weekly returns going back to 2017. The Triple Witching Weeks include the third Friday of the month for March, June, September, and December. Other expiration weeks are those ending in the third Friday of the other months. All other weeks are considered non-expiration weeks.
Next week is triple witching week in which stocks have tended to perform poorly. The S&P 500 has averaged a 0.53% loss during these weeks with 53% of the returns positive. Expiration week in general hasn’t been great with other expiration weeks averaging about a breakeven return with less than half of the returns positive. Market gains have come during non-expiration weeks in which the index has averaged a return of 0.37% return with 62% of the returns positive.
This next table shows more recent data, going back to 2021. Expiration weeks, whether triple witching or not, have been bad for stocks with about 35% of them positive averaging a return of 0.36%. I mentioned above how pundits often say to expect volatility during triple witching weeks. They’ve been right on this. Since 2021, the standard deviation of returns during triple witching week has been 3.04% which is significantly higher than other weeks.
Where Triple Witching Days
The table below summarizes triple witching week by day since 2021. These weeks tend to be fine through the first half of the week, then Thursday things start to unravel. In the 14 triple witching weeks since 2021, the S&P 500 has averaged a loss of 0.33% on Thursdays with just 36% of those returns being positive. If that’s not bad enough, triple witching day, which is the actual day of expiration, the index has averaged a loss of 0.52% with just two of the 14 days positive. For whatever reason, investors have tended to sell during triple witching week and especially at the end of the week.
One thing I find interesting in the table below is that triple witching day, Friday, has the lowest standard deviation of returns. Poor stock returns are typically accompanied by higher volatility but in the case of triple witching days since 2021, the returns have been consistently bad with little deviation.
