triple witching

On a normal Friday evening, a market closes the way a market closes. Prices settle, traders shut their laptops, and Lagos goes back to worrying about fuel queues and Arsenal's defence.

On a Triple Witching Friday, that same closing bell feels more like the last ten minutes of a football match that is level on aggregate. Everybody who has a position tied to an expiring contract is suddenly forced to act, and they are all acting at once.

Here is what is actually happening. In markets like the United States, stock options, stock index options and stock index futures all expire on the same day four times a year, usually the third Friday of March, June, September and December. Traders and fund managers who have been holding these contracts must close them, roll them over, or let them settle, and a lot of that activity gets crammed into the final hour of trading, known as the closing auction.

A Nigerian investor holding shares in an American company like Apple through an app such as Bamboo or Trove will not need to do anything on that day, but they might notice the share price jumping around for no obvious reason, purely because big institutional funds are unwinding or rolling their futures and options positions in bulk.

In London, something similar happens on the FTSE 100 during its own quarterly expiry dates, and traders there call it much the same thing, just with tea instead of Bornvita to calm the nerves.

The volume on these days can be enormous, sometimes double or triple a normal day's trading, simply because so many contracts are settling at once. It usually has little to do with any company doing well or badly, and everything to do with the plumbing of the derivatives market clearing itself out.