What's going on?

A �quadruple witching day� on Friday saw several options and futures contracts expire, and it threw some serious shade at a bunch of big companies� share prices.

What does this mean?

Four times a year, lots of major derivative contracts on US stocks expire all at once. That leaves investors with a decision to make: �roll� the contracts forward by buying those with a later expiry date, or buy and keep the related shares.


But what made Friday�s event notable was last month�s frantic buying of short-term tech stock options. See, a short-term �call� option gives you the right to buy stocks for a pre-agreed higher price at some point in the near future. And when someone buys one of them, the trader who takes the other side of the bet buys those companies� stocks at their current price so it�s ready to hand them over. That pushes their share prices higher, which in turn drives an increase in option and stock valuations. But if that bubble bursts � like it did earlier this month � the owners of those options will let them expire. And that means the traders will sell the shares they don�t need any more, putting downward pressure on stock markets.

Why should I care?

For markets: Ignorance isn�t bliss.

Most institutional investors were aware of Friday�s phenomenon, but retail investors might not have been. And while they haven�t historically had much of an impact on stock markets, the recent popularity of commission-free trading means retail traders now account for 20% of stock trading versus 15% last year. Their trades, then, have had a bigger effect on stock markets than most people could�ve anticipated.

For you personally: What a bummer.

Investors are better off thinking long term, and should ideally only check on their investments to rebalance them. Prices tend to rise over time, after all � and research has shown that the disappointment you feel from seeing your portfolio�s fallen outweighs the kick you get from seeing it rise (tweet this).