$7 Trillion Quadruple Witching Event Marks Historic Expiration in September 2023

On September 18, 2023, approximately $7 trillion worth of stock index futures, stock index options, and single-stock options expired simultaneously, making it the second-largest quadruple witching event recorded. This figure is comparable to the combined GDP of Japan and India.

Quadruple witching occurs four times a year, on the third Friday of March, June, September, and December, when four types of derivative contracts expire at once. The final hour of trading, known as the 'witching hour,' typically sees significant trading volume as positions are adjusted.

This particular event was notably influenced by the Federal Reserve's recent interest rate hike, which occurred just two days prior. The Fed raised its target interest rate by 25 basis points to a range of 3.75%-4.00%, marking its first increase in over three years. This monetary policy shift, combined with the Bank of Japan's concurrent meeting, added layers of uncertainty to the market.

Pre-event estimates from Citadel Securities indicated that US options exposure was around $6.2 trillion as of late August. The increase to $7 trillion suggests significant positioning by traders in anticipation of the Fed's decision.

As the expiration approached, Citadel Securities characterized the event as a potential technical reset for the market, highlighting the impact of dealer gamma on volatility. With a substantial portion of the expiring options expected to settle at market open, the resulting order flow could significantly affect market liquidity.