Options Trading Witching Dates And Options On Futures
In the last decade, options trading is become popular among the general investing public. Options is a derivative contract that gives you the right but not the obligation to buy the underlying asset at a fixed price till a certain date.
Options contracts are now available on most of the stocks, commodities, currencies and other assets. You can even trade options on futures contracts. Now, most of the people trade stock options. When you trade stock options, you need to know a few dates that are popularly known as the Witching Dates.
Now options contracts are written for a specific period of time. All expire on the third Friday of the month of their expiry. Options contracts are available not only on stocks but also on futures. These options on futures expire on different dates. These dates are known as Double Witching Dates, Triple Witching Dates and Quadruple Witching Dates. So need to know what happens on these dates.
Double Witching Days are those when any two of the different classes of options contracts like the stock options, stock index options or the stock index futures options expire. Triple Witching Days is when these three classes expire on the same date. This date is the third Friday in the last month of each quarter. Quadruple Witching Days are those when these three classes of options contracts expire along with the individual stock futures options.
There is a difference between trading a stock options contract and the stock futures options contract. When trading the stock futures options contract, you need to know how to trade options in general coupled with the intricacies of trading that particular futures contract. A good example can be that of the S&P 500 futures options. This options contract is written on the S&P 500 stock index futures contract. Now, when you trade, the S&P 500 stock index futures, the value of the contract is obtained by multiplying the S&P 500 index value with $250. So, if the value of S&P 500 stock index is at 1,000 points, the value of the S&P 500 stock index futures contract will be $250,000.
Now, suppose S&P 500 stock index only rose 5 points in the day. So, you will be making ($250)(5)= $1250 in a single day. Not a bad amount. But the margin requirements for S&P 500 futures are high for most of the retail traders so they trade the E-Mini version of S&P 500 futures that has a value of only $25 multiplied by the stock index value. You need to know all these facts when you are thinking about trading S&P 500 futures options.
Questions and Answers
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