What Is Quadruple Witching and How To Invest During It?

What Is Quadruple Witching and How To Invest During It?

What Is Quadruple Witching and How To Invest During It?If you’re like me, you’re always looking for the best return on investment. Can trading around quadruple witching help you earn more?

What is quadruple witching and can you use the phenomenon to your advantage when trading stocks? Should you even bother? Quadruple witching is the expiration of stock options and stock futures at the same time. And, it only takes place only four times throughout the year. 

When is quadruple witching? Quadruple witching takes place in March, June, September, and December on the 3rd Friday of the month. It requires options and futures investors to close out their trading positions across stock options, single stock futures, stock index futures, and stock index options on the exact same da. And, the phenomenon is often associated with higher than normal trading volumes on the stock exchanges in the United States.

What Is Quadruple Witching?

Quadruple witching is a calendar phenomenon whose name may be far worse than its actual occurrence. The name conquers up thoughts of witches casting spells of doom and gloom on Wall Street. But, that’s not quite what’s going on of course. 

During quadruple witching, many options and futures investors must let go of their futures and options positions before the contracts expire at the end of the day. Investors may notice a fury of investing activity if you watch CNBC, Fox Business News, and the other business television news networks, especially during the final hours of market trading in the United States. 

The strange sounding phenomenon often forces investors to repurchase contracts and/or sell their market positions closing our their contracts. Investors must finish their futures and options contracts on the expiration day. They have the option to repurchasing – or rolling over their positions – or closing out all of their options and futures positions.

All of this market activity by the options and futures traders often leads to a very noticeable increase in trading volumes for the day on the NYSE, NASDAQ, and other stock markets in America. Many estimate that trading volume during quadruple witching days can be a high as 50% more than a normal trading day. There can often be an increase of intraday volatility as well.

At the end of the day, the name quadruple witching is a lot more bark than bite. For the typical investor, you may barely even notice when the day is or the spike in trading volume on the stock exchanges. For most investors who practice dollar cost averaging in the 401k retirement plans and the like, they will barely notice. And, that’s a good thing! 

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Don’t ‘Fire and Forget’ Your Finances and Investments

Don't Fire and Forget your financesDo you fire and forget your finances and investments like an unguided, general-purpose dumb bomb falling from an Air Force bomber? Or, do you constantly watch your investment and track them like a TOW missile? The answer is often to find that ground road between the two, the compromise.

Far too many of investors often choose the path of least resistance. After we finally overcome the initial roadblocks and start investing for retirement and other financial goals, many of us get set in our ways. We let our investments run their course without following up with them or even checking on the periodically.

You must find a balance in investing. Where do we draw the line in being too involved versus having a hands off approach? We have to find that middle ground.

Deep down, we all know that we should have some checks and balances with our investments. Here are a few times when you should look back in on your investments.

Look at Your Asset Allocation

Are your investments unbalanced with more bonds or more stock than you planned? With the recent fluctuations in the stock market over the past few weeks, many investors find their asset allocation, their asset class percentages, misaligned from their plan.

You should look at rebalancing your portfolio at least once a year. The mix between stocks, bonds, cash equivalents, and other investments that you have cannot simply be set on autopilot and forgotten about. You need to relook it every so often.

A couple of good tactics and techniques that many employ are the simply rebalance your investment portfolio after the New Year. I know other investors who like to look at their investment mix around their birthday. It’s an easy date to remember for most of us, although many may not like the reminder of getting older.

Whatever tool you use or date you set, put it on your calendar. Have you had a great year with your stocks? Are you underweight in bonds for your target? Find time to rebalance your portfolio once a year.

Dollar Cost Averaging Is a Great Tool

Most of us have heard that we should pay ourselves first and place investing for retirement and our other financial goals high in our budgeting priorities. And, dollar cost averaging is a great tool to accomplish that goal.

With dollar cost averaging, you invest a set amount of money each month in an investment regardless of that investment’s share price. In some months, you will pay a higher amount for few shares with rising share price. But, other months, you’ll be able to purchase more shares with the same amount thanks to lower share prices.

Over the course of a long time horizon, your costs will start to average out to a middle range, hence the name, dollar cost averaging. Typically, your total costs will be lower on a per share basis than had you simply just tried to time the markets.

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Understanding Investing With Margin

The Perils of Investing With Margin

The Perils of Investing With MarginThe demand for robust returns in the capital markets environment has created an environment where investors require capital to enhance their returns.  This demand has generated a sophisticated process in which investors can borrow capital that is used to invest in stocks and futures to enhance their returns. Investing with margin is a way that investors can find a great rate of return.

Most brokers offer investing with margin as a product which allows investors to borrow capital using the securities they hold within their account as collateral.  Margin provides leverage, which can enhance and detract from returns.

What Is Investing With Margin

Margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counter party.  Investing with margin is most often associated with a broker or an exchange. The collateral that can be used to post margin can be in the form of cash or securities, and it is deposited in a margin account.

The initial margin is a guarantee and offsets losses should they occurs. Margin is calculated by using the historical volatility of a financial security and calculating the potential losses that could occur on a given day. The margin system is a mechanism that insures there is sufficient cash to cover losses and protects a broker from risks of losses.

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Where Should A New Investor Put $1,000 To Work In The Market?

Where To Invest 1000 In Today's Market

I asked 12 of the best personal finance bloggers and money experts the best way to invest money to get an idea of where to start investing. “What is the best way to invest money for a brand new investor? Where should a brand new investor put $1,000 to work in the market?” And, I was not disappointed by their answers. Here are what they said… The Best Way to Invest Money for a New Stock Investor J Money from Budgets Are Sexy – It’s always hard to advise someone the best way to invest money without knowing them at all or their comfortableness with risk, etc, but I know for me (a riskier type of guy) I enjoy investing in stocks … Read more