Options Triple Witching Day

Happy Options Triple Witching Day! Weekly options contracts, including cash secured puts and covered calls, expire every Friday. Monthly option contracts expire on the third Friday of the month. And quarterly option contracts expire the on the third Friday of the month for the last day of the quarter. This includes options on companies, index options, and index futures. That happens on the third Friday of the third month of each quarter which includes March, June, September and December.

When we have all three of those contract time periods expiring on the same day we often see extra volatility. That means we can see some outsized moves in the underlying securities today. Any trades we have that are very close to our strike price we’re going to watch closely today.

For positions that are just out of the money we’ll look at closing the trades earlier in the day. Those trades should be in a profitable position. We’ll capture the gain in the options premium and then sell the position again for the next expiration date.

Any positions that are just in the money we’ll wait until the last half hour of trading to adjust. The extra volatility on options triple witching day gives a better chance than normal that the share price could move. That move could be either for or against us. If something moves in our favor and we don’t want to be assigned the shares we’ll roll the position.

When we roll a trade we buy to close the trade that we sold to open. We sell to open a trade to bring in option premium as passive income. When we buy to close that trade, we pay to close the position. We’d like to pay less to close the position than we received when we sold to open the position. If we’re at a net negative on the trade then we look for another trade at a more favorable strike price that is further out in time with enough premium to make up the difference. Here is an example of how to roll an option trade. We’re more likely to roll our trades that are borderline in the money on options triple witching day.