Is the "Quadruple Witching" day approaching? Understand this quarterly market feast

Quadruple Witching Day is a concept that every US stock market investor must understand. As these days approach, the market often becomes turbulent, with sharp price swings and surging trading volumes, as if an unseen force is driving the prices. What exactly is Quadruple Witching Day? Why does it impact global markets? Today, we will unveil the mysterious veil of this market spectacle.

The Truth About Quadruple Witching Day: The Key Moment for Derivative Settlement

Simply put, Quadruple Witching Day is the settlement date for the four major types of derivative financial products in the US, including single-stock futures, single-stock options, stock index futures, and stock index options.

Why is it called “Witching” Day? This is because, as futures prices approach settlement, they gradually converge with the spot prices, as if an invisible force is pulling them closer together. These price movements, driven by non-fundamental factors, often cause significant volatility, hence the industry term “Quadruple Witching.”

The “Four” in the name represents four times a year. Since US derivatives are settled quarterly, there are four settlement days annually, each on the third Friday of March, June, September, and December. The official name is Quadruple Witching Day.

Quick Reference for 2024 Quadruple Witching Dates

Investors might want to remember these dates, as risk and opportunity coexist on these days:

Leverage traders should exercise caution, as volatility on Quadruple Witching Day can trigger forced liquidations.

Why Does Quadruple Witching Day Spark Market Turmoil?

When Quadruple Witching Day arrives, the market usually exhibits three major phenomena:

Massive increase in trading volume and significant rise in volatility

Trading volume on this day often peaks for the year. Changes in holdings far exceed normal daily fluctuations, and the frequent inflow and outflow of capital directly reflect in price swings.

Panic sentiment spreads, turnover rate surges

Facing the unknown settlement pressure, investors adjust their positions in advance, leading to faster portfolio turnover and record-high market activity.

Stock prices deviate from fundamentals, short-term detachment

This is the most distinctive phenomenon—prices are entirely driven by capital flows, temporarily disconnecting from company fundamentals and technical analysis.

Why Do These “Irrational” Phenomena Occur?

The key lies in the intrinsic nature of derivatives. Futures and options buyers are betting on “future prices,” not the current spot prices.

When the market expects a bullish trend, futures prices tend to be higher than spot prices; when bearish, the opposite. As the settlement date approaches, this price gap gradually narrows until it fully converges on the settlement day.

The last hour is the most critical—industry practice often uses the average spot price during the last hour of Quadruple Witching as the settlement price. This period, called Quadruple Witching Hour, is often the most volatile.

The “Art of Control” by Major Funds

On this day, large institutional players with substantial capital will demonstrate clear intentions to control the market. Their goal is straightforward—to move prices in a direction that maximizes their own benefits.

Common control tactics include:

• Raising the prices of heavily declined assets to create a rebound illusion
• Suppressing the prices of overly risen assets to lock in profits
• Creating false trading volumes to lure retail investors into following

Retail and short-term traders, noticing these patterns, also attempt to “eat the main force’s tofu,” leading to a fierce confrontation stage between institutions and retail investors on Quadruple Witching Day. The immediate result is—trading volume skyrockets, and market activity reaches its annual peak.

Historical Data Speaks: Quadruple Witching Day Usually Is a Trap for Gains

According to statistics since 1994, the US stock market has been in a long-term bullish environment, so major institutions tend to push up spot prices on Quadruple Witching Day.

However, an important finding is: 88% of stocks that are forcibly pushed higher on Quadruple Witching Day tend to fall back within the following week. Moreover, the S&P 500 index usually declines by about 1.2% after Quadruple Witching Day.

Why is this? The reason is—main players push prices higher on settlement day to settle derivatives at higher prices, but these increases often lack fundamental support. After settlement, without new buying interest, retail investors start to take profits, and prices naturally revert.

Of course, this is “most of the time.” There are exceptions—sometimes the entire year is bearish, and Quadruple Witching Day may decline; other times, too many retail follow the trend, causing the main players to get “liquidated.”

Insights for Different Investors on Quadruple Witching Day

Long-term investors can ignore it

If you are a buy-and-hold investor, the volatility on Quadruple Witching Day has little impact. Ultimately, stock prices will return to fundamentals, and short-term capital fluctuations will be absorbed by long-term trends.

Short-term traders must pay close attention

For traders focused on capital flows, Quadruple Witching Day is the most important four days of the year. The influx of major funds and speculative retail investors creates rare trading opportunities.

Expecting oversold stocks to rebound can be a buy signal; expecting overbought stocks to retreat can be a short sell. But remember—these fluctuations are purely driven by capital, unrelated to fundamentals. Operate only in the short term, strictly avoid holding positions overnight. Within a week after Quadruple Witching Day, price volatility remains high, so vigilance is necessary.

Investment Precautions for 2024 Quadruple Witching Day

The overall market trend of the year determines the direction of Quadruple Witching Day—a bullish year usually results in overbought conditions; a bearish year tends to decline.

Currently, US stocks are driven by AI concepts and maintain a bullish pattern. Therefore, it is expected that the 2024 Quadruple Witching Day will continue the upward trend, unless there is a fundamental market reversal. Investors should monitor closely.

Derivative holders should pay special attention to settlement risks. If participating via futures or options, early position adjustments are more prudent. As Quadruple Witching Day approaches, liquidity decreases and transaction costs rise, increasing the risk of position shifts. Instead of making last-minute adjustments, it’s better to plan ahead.