![]() It can be not only on shares and stock indices (which is what we explain here), but also on loans, deposits, commodities and other assets. the IBEX 35 in Spain and the Dow Jones in the US).Ī futures contract is also a derivative whose price is pegged to an underlying asset. Index options are similar but consider the price shift of an entire stock index (e.g. 5 + 22 euros) when the contract expires, you can receive a return if you buy the share. If the share's price is higher than the sum of the premium and the option price (i.e. You pay a premium of 5 euros for the right to buy the shares in a certain time frame at 22 euros each. For share options, imagine that a company’s shares are trading at 20 euros each. The investor pays a premium to hold the option.Īn option's underlying asset can be a share or a stock market index. It gives investors the right, but not the obligation, to trade a security at a pre-set price upon its expiry date. Which securities are traded during the “quadruple witching hour”?Īn option is a derivative contract whose value is pegged to another underlying asset. Knowing how stock index futures, stock index options, stock options, and single stock futures work will help you understand "witching". ![]() Because of unusual price movements, sessions are dubbed the “quadruple witching hour”, or “Freaky Friday” in stock market lingo. "Witching" is where the contracts simultaneously expire, causing trading to soar in the last hour. Shares and bonds might be what first spring to mind when we think about the stock market but stock index futures, stock index options, stock options and single stock futures are some listed securities that also pique investors’ interest - so much that markets have special “witching hours” to trade them on the third Friday of March, June, September and December. Here's why that happens and how it impacts on stock markets. This fast cluster of trades makes the prices of such derivatives more unstable and volatile. ![]() Trading of stock index futures, stock index options, stock options, and single stock futures increases in four special sessions a year.
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