Quad witching week can see some wild action. 

It’s an event that only occurs 4 times a year, and can come with added volatility and surprises. Let me explain a strategy I like to employ specifically during Quad witching week.

When we have a big move one way or the other on quad witching week, you can easily see a move back in the other direction quickly. 

I began fading yesterday’s selloff and took some positions. With the gap down this morning, I’m a little underwater on some of these trades, but my risk is well defined, and I still like the trade Idea. 

In fact, with this gap down, I like the trade even more, but as always, my risk is defined in case I am completely wrong, and we have a market meltdown that I talked about last week. You can read more about that here.

Quad Witching

Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. 

While stock options contracts and index options expire on the third Friday of every month, all four asset classes expire simultaneously on the third Friday of March, June, September, and December. This can lead to some unusual moves during the week, as Funds rebalance and hedge their positions.

Rivian (RIVN)

I sold the $115 puts at $4.20. This makes my breakeven price $110.80. RIVN is forming a nice base, and I expect the stock to hold above $111 into the end of the week. 

UVXY

The UVXY is a measure of volatility. Usually, the UVXY has an inverse relationship to the direction of the market i.e. if the market goes down, the UVXY will go up. I sold the UVXY $16 calls yesterday for $0.80. This gives me a breakeven price of $16.80 at the end of the week. I am expecting the SPY to retrace yesterday’s move and go higher, thus for the UVXY to move lower.

AMZN

The $3350 level in Amazon.com Inc (AMZN) is an area where I would expect to see buyers holding out for support. At that area instead of buying stock I’d rather sell puts to the eager bears and collect on the increase of implied volatility in the options market.

And if the bulls step in down there, I would expect them to rally back towards the moving averages AMZN has traded away from.

I structured this trade by selling the 3340 puts and buying the 3290 puts expiring this Friday. A hold above 3340 would be a great trade for me.

QQQ

I am long 50 of the 390 QQQ calls. That position is underwater at the minute, however, with Quad witching and 2 days of Fed meetings, I expect some volatility. If the market continues to stay weak, I will take the pre-defined L. 

Bottom Line

Quad witching week can bring a ton of surprises and volatility as funds rebalance and hedge their portfolios. 

A big move in one direction can easily snapback, which is why I began trading for a bounce yesterday. I did this by taking a position in options on RIVN, UVXY, AMZN, and QQQ. I expect volatility to increase and have sized my positions accordingly. Friday should be a lot of fun, as many games will be played into the close.