Double Witching
Categories: Derivatives, Trading
You must've heard of the “witching hour,” the time of night when black magic and supernatural events happen to unsuspecting teens with six-packs and tight clothing.
So, um, how appropriate to connect it with Wall Street? Normally, stock options in America expire on the third Friday of every month—that’s the reason the options sheet just shows, for example, KO $455 strike 50 Nov. 19. But it’s not November 19th that they expire—it’s the third Friday of November in 2019—the system just simplifies, well, everything. But double witching adds another layer.
On the third Friday of every March, June, September, and December, (called the double witching days) two out of four classes of options or futures expire. These four classes are: stock index futures, stock index options, stock options, and single stock futures. To further challenge the situation, there are also single, triple, and quadruple witching hours, where frantic traders try to close out their positions in one, three, or all four classes, respectively, during the last hour of the stock market trading session (3:00-4:00 P.M. Eastern Standard Time) on these days.
No wonder traders are always shouting like it’s a matter of life or death on TV and in the movies.
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Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]