This “Triple Witching” Means Big Money for Traders

Andy Snyder|December 14, 2022

It’s a big week. Everybody is talking about yesterday’s inflation figures and the oh-so-pivotal move the Fed will make this afternoon.

But there’s something else happening this week. Hardly anybody is talking about it.

But trillions of dollars are on the line.

This is options expiration week. But it’s not an ordinary expiration week. This kind comes just a few times each year. It’s a “triple witching” – when stock options, index options and index futures all expire at the ringing of Friday’s closing bell.

It’s a recipe for quite a show.

Typically, “witching hour” comes during the last 60 minutes of trading. That’s when traders and money managers buy and sell to close out their positions and unload their equities.

Trillions of dollars will change hands.

Things are likely to be extra chaotic this week.

Yesterday’s inflation figures gave the markets plenty to trade on. Investors across the market used options and futures contracts to hedge their stakes. If they haven’t already closed their positions… they will by Friday.

It’s the same story with today’s Fed decision. But there, the stakes are even higher. Big money is on the line… and Wall Street has massive options positions hedging against surprises.

But there’s another variable in all of this.

Most folks aren’t talking about this one, either. It’s the VIX… the go-to volatility index… aka the “fear gauge.”

It values the premium in the options market.

Its chart just formed a “death cross.” The index’s 50-day moving average dipped below its 200-day average.

When this pattern occurs in stocks, it’s quite bearish. But in the VIX, it’s a sign that volatility is falling quickly. It means options are getting cheaper and investors expect stocks to move less.

Fear, in other words, is falling.

But that could all change with a single tap on the podium this afternoon.

If Powell talks of lingering inflation and a “higher terminal rate,” stocks will dip, options will surge and Friday’s triple witching will be a wild one.

The same would be true, though, if a dovish Powell shows up today. If he’s proud of the work he’s done to bust inflation, if he hints that fewer hikes are coming… stocks will soar, the VIX will plunge and, once again, Friday’s triple witching will be a wild one.

It’s quite a setup for fast-moving traders.

Today’s news will make the headlines. But Friday’s action – especially late in the day – is likely to make the money. We’ll be talking more about this idea and how to play it during our monthly live call with paid subscribers later today.

It’s a good time to be a fast-moving options trader.

This week will be interesting.