Have you ever heard of, “Triskaidekaphobia?” It’s the Fear of the number 13. What about the Fear of Friday the 13th? I googled it and found two different words to represent that Fear: Araskavedekatriaphobia & Paraskevidekatriaphobia.

But if you’re an Option Trader, more specifically a SPY Option Trader you should be more aware of “Triquadwitchaphobia”, also known as “Triptripwitchaphobia” – the “Fear of Quadruple/Triple Witching Friday.

Before I share why SPY Option Traders should Fear this four-times a year event, allow me the opportunity to explain just what it is and more importantly when it occurs.

Triple Witching is the Quarterly Expiration of Stock Options, Stock Index Options & Stock Index Futures. In 2002 Triple Witching became Quadruple Witching as it also included Single-Stock Futures (which stopped trading around 2020).

As a long-time trader, it took me a long time to switch from calling it Triple Witching and switch to calling it Quadruple Witching. It’s also taken me a long time to switch back to calling it Triple Witching again.

More importantly than what you call it, “Witching Friday” takes place just four times a year. It occurs in the Third Friday of March, June, September and December. As such, it’s set to take place this upcoming Friday (December 20).

So if you have a Fear of Friday the 13th, as an Option Trader you should simply ignore any concerns. That is unless you trade the handful of stocks which only have Monthly Expiration Options. In this instance, Friday the 13th is just a Friday.

For SPY Options Traders, which have Daily Expirations, any day is equal to any other day… With the Exception of these Four Fridays.

The reason while SPY Option Traders should Fear this upcoming Friday isn’t easily discovered by a Google Search. As an example, if you search for information on Triple/Quadruple Witching Fridays, this is something you’re likely going to find. As a result of your search:

First off, let’s completely Ignore Stock Index Futures. Futures are a completely different animal. They trade at Commodity Exchanges like the Chicago Mercantile Exchange (CME). I’m not saying they’re bad, but they are a bit more complex and have more risks than trading Stock & Stock Index Options. But that’s for another discussion at another time.

Allow me to show you a few screenshots to help you see what Google is hiding:

(All of these screenshots were taken over the weekend after the close of expiration on Friday the 13th).

This first screenshot shows SPY Expirations for the Week Ending in Friday, December 20th. The only difference you might see from one week to the other is if there is a Market Holiday which would cause it to skip a day.

This second screenshot is of the Cash Settling Index XSP. It has the same Expirations as does SPY. The closing price from Friday the 13th is slightly different, that’s also not discussed with a simple Google Search. But for right now let’s focus on the available Expirations.

This next screenshot is of the Cash Settling Index SPX. You will notice a number of differences. Right off the top is the Price. SPX is exactly 10 times the size of XSP. And it’s within a rounding error of 10 times the size of SPY.

But there’s an even bigger difference. You should count six Expirations next week. Six Expirations for five days.

This is not just an added Triple/Quadruple Witching Expiration. This occurs on the third Friday of every month. SPX has another Expiration. The “AM” Options “close” or more correctly stated, “Settle” at the opening of the Market that day.

More specifically, this Cash Settled Index prices once all 500 stocks of the S&P 500 actually open trading for the day. But a discussion of that is for another day.

This next screenshot shows the prices for both the December 20 Expiration “a.m. & p.m.” Options Prices at the Close of trading on Friday the 13th. The only distinction I’m trying to point out is as always, “More Time Costs More Money!”

This next screenshot shows XSP Options with the Thursday, December 19th and Friday, December 20th Expirations. To me the only thing out of line is that there is no $605 strike price on Friday the 20th. But I assume they will add that sometime during the week.

This final screenshot shows SPY Options with the Thursday, December 19th and Friday, December 20th Expirations. There is something completely different on the screenshot below. Something which happens only four times a year. The other 48 weeks of Thursday/Friday are just like any other pair of back-to-back days the whole year. This is something I haven’t found with a Google Search.

This is something I haven’t found with a Google Search. Feel free to search the data below before seeing my answer shortly thereafter:

If you don’t see it, allow me to point it out to you. I’ll give you a moment to ponder the information before I tell you the reason and the ramification. The easiest way to see it is to look at the $604 Calls & Puts for both the Thursday and the Friday Expirations.

With SPY closing at $604.21, the $604 Call is In-the-Money (ITM) while the $604 Put is Out-of-the-Money (OTM). It would make sense that the $604 Call would be priced slightly higher than the $604 Put. That’s the case on Thursday the 19th.

But now look at the $604 Call & Put for the Friday the 20th Expiration. The Put is over a dollar more than the Call. Why is this possible?

I asked Google, “Why are the December 20 expiration SPY Puts more money than the December 20 expiration SPY Calls?” And this is what Google Answered:

That’s flat out WRONG!

The REAL Reason for the difference between December 19th and December 20th option prices is the FACT that SPY will pay a Dividend on the morning of the 20th. Well actually the “Pay Date” might be some time off in the future, the “Ex-Date” is always on the Third Friday.

First let me tell you the Scary Thing. Something that if you experience it once in your life, you’ll be sure to never experience again. Or as my friend has been often been heard saying, “I’m not stupid enough to make that mistake a third time!”

If you are Short an In-the-Money (ITM) SPY Call with the Expiration of the Third Friday as part of a Calendar Spread, you will be Called Out Thursday Night and be forced to pay the Dividend on the “Pay Date”.

You might be saying to yourself, “That’s okay, I don’t trade Calendar Spreads, I only buy straight Calls and straight Puts.”

Well I have something scary for you then still. It’s a FACT of Trading that when a stock, or in this case an ETF, pays a Dividend the price of the stock will drop by the amount of the Dividend.

Therefore, if you have bought a SPY Call hoping for a big move up on the Third Friday of the month, you’re starting out in a hole. The price of SPY will drop by roughly $1.75 first thing Friday morning. Ironically, I have to say, “roughly” because it’s not officially posted until after the fact.

Some of you might be saying, “That’s okay. I’m going to buy an SPY Put. The Dividend Drop in the morning is just Icing on the Cake!” Sorry to tell you, you’re already paying for that Drop. That’s why SPY Puts are priced more than the Calls.

I have a better solution. Consider trading the Cash Settle Index Options. I’m referring to SPX and XSP. What’s better than not having to Sell to Close (STC) your options? You can take your Calls or your Puts all the way to Expiration. And they will Cash Settle for their Exact Intrinsic Value. You don’t have to deal with a Market Maker trying to cheat you near the end of the day.

This last aspect is especially true if you trade Butterfly and/or Condor Spreads. You’re not forced to ever close your Position. More importantly, you’re not forced into the Closing the Debit Wing/Credit Wing Dilemma. If your Spread is In-the- Money (ITM) at Expiration, that exact amount is placed into your account.

Cash Settled Options are the way to go! I’ll have more reports sharing why as the days/weeks/months pass. Feel free to point out anything I miss. I very much appreciate constructive criticism.

Thanks and Good Trading,

Chris Verhaegh