The Fed raised rates by 25 basis points on Wednesday, taking the federal funds rate to 3.75%–4.00%, its first hike since 2023. The S&P 500 rode a rollercoaster that day, spiking early, sliding to 749, then clawing back to 757 after hours. Thursday brought relief: the S&P gained 1.1%, the Nasdaq 1.7%, and the VIX dropped from 17.7 to 15.4 in a single session.

The test comes right after the bounce. This Friday in the US, which is 9.30pm tonight to 4am tomorrow Singapore time, is the third triple witching day of the year.

What is triple witching?

Index futures, index options and single-stock options all expire on the same day. It happens once a quarter, on the third Friday of March, June, September and December.

We've used this analogy before: imagine your credit card bill, your BNPL instalment and your rent all falling due on the same day. Whatever shuffling you need to do with your cash, it all has to happen within 24 hours. Institutions face the same squeeze. Quarterly contracts expire, hedges have to be rolled or dropped, and index funds must complete their quarterly rebalancing that same day. That's why the final hour of triple witching so often produces a flood of large orders with no news behind them.

How big is it? $SPDR S&P 500(SPY.US) alone, for tonight's expiry alone, has 3.28 million contracts of open interest, roughly US$2.5 trillion in notional value at current prices. Puts outnumber calls nearly two to one, which tells you the big money has spent the past few weeks buying insurance.

This one collides with a rate hike

At the last two triple witchings, the market was talking about cuts. This time it's the reverse.

The 10-year Treasury yield briefly crossed 5% this week, Brent crude touched US$109, and $United States Oil Fund LP(USO.US) , the oil-tracking ETF, is up 22% over the past month. Inflation and oil prices together pushed the Fed back into hiking mode. Both numbers stepped back on Thursday: the 10-year yield eased to 4.95% and Brent settled near US$104.

The two most crowded institutional trades of the past few weeks, short long-dated Treasuries and long crude, both exhaled on Thursday. Tonight is their quarterly expiry.

Three sectors to keep an eye on

One: do Treasury shorts keep covering? With the hike done, most of the thesis behind shorting long bonds has already played out. Yields fell on Thursday and $iShares barclays 20+ Yr Treasury Bd(TLT.US) , the long-bond ETF, rose 1.1%, so some profit-taking has already begun. As quarterly contracts expire, do the shorts roll forward or bank the rest? Unusual volume in TLT in the final hour tonight is worth watching.

Two: do oil longs trim? A position up 22% in a month has every incentive to take profit on a quarterly roll date. Crude already slipped about 1% on Thursday. If oil keeps sliding tonight, it may have nothing to do with demand and everything to do with positions simply expiring.

Three: does AI hardware get its allocation back? The Philadelphia Semiconductor Index has been grinding sideways for a month, with a peak-to-trough range of nearly 16%. It bounced 3.4% on Thursday, with $NVIDIA(NVDA.US) up 2.5% and $Intel(INTC.US) up 7%, yet it's still down 5% over the month. Quarterly rebalancing by index funds trims what has run up and tops up what has lagged. Semiconductors have been on the trimmed side for a month. Was Thursday's buying rebalancing money arriving early, or a one-day wonder? Volume in $iShares Semiconductor ETF(SOXX.US) and NVDA in tonight's final hour will tell.

We don't have answers to these three questions and we're not going to guess. Triple witching is a window for observation. Late-session volume and direction tell you more than the intraday swings.

What to do with your positions

If you hold contracts expiring tonight, decide before the close. Deep out-of-the-money contracts that are already worthless can simply expire. Contracts with a strike sitting right at the current price should be closed or rolled to 25 September or 16 October by you, not left for the system to decide at the bell. When the close lands within cents of your strike, a contract you assumed would expire worthless can get exercised, and a seller who gets assigned wakes up on Monday holding a pile of shares into a gap. This is the most common triple witching surprise.

If you hold shares and are worried about tonight's swings, buy some insurance. A protective put, with an expiry next week or in October, steering clear of tonight. With the VIX back at 15.4, that insurance is noticeably cheaper than it was on Wednesday. If it still feels expensive, a collar lets you sell an out-of-the-money call to offset part of the cost. In the Longbridge app, go to the stock's detail page → Options → Multi-leg Options and pick the strategy to place both legs in one order.

If you're selling premium, skip this week's expiry. The VIX fell 12% in a day, so premiums are thinner than they were on Wednesday and the trade-off for sellers has worsened. If you're writing covered calls or selling puts, choose October expiries and stay away from tonight's price distortions.

If you trade today, use limit orders, not market orders. The order book on triple witching is more deceptive than usual: volume is heavy, but spreads can blow out in an instant. And don't use the intraday chop as an excuse to chase same-day expiry contracts.

We're traders, not gamblers. The job tonight is to clean up the contracts that need handling. That matters far more than calling the direction.

Do you have contracts expiring tonight? Closing out or rolling? Tell us in the comments.

Disclaimer: The examples above are for educational purposes only and do not constitute investment advice or a recommendation of any kind. Strike prices and expiry dates mentioned are hypothetical and serve only to illustrate how these strategies work. Please choose option parameters that suit your own risk tolerance, market conditions and specific needs. Investing involves risk. Please trade with care.

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