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The witching hour in
finance, particularly in stock markets, typically refers to the final
hour of trading on the third Friday of March, June, September, and
December.This period is significant because it marks the simultaneous
expiration of three different types of derivatives contracts: stock
index futures, stock index options, and single stock futures or
options. This convergence of expirations can lead to heightened
volatility and increased trading volume as investors and traders rush
to adjust or close out their positions before these contracts expire
worthless. For example, let's say it's the third Friday of June, which is a triple witching day. During the witching hour, traders may scramble to close out their positions in S&P 500 index futures, NASDAQ 100 index options, and options or futures contracts for individual stocks such as Apple or Google. This flurry of activity can create rapid price movements and increased trading volumes as market participants react to changes in their positions or attempt to capitalize on short-term trading opportunities. The witching hour, especially during triple witching days, is a critical period for traders and investors to monitor, as it can have a significant impact on market dynamics and the pricing of various financial instruments. |
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