A must-read before the US Quadruple Witching Day: Why do trading volumes skyrocket and stock prices swing wildly during these four days?

Every quarter-end, the U.S. stock market always puts on a “big show.” Trading volume suddenly surges, stock price swings exceed expectations, and market makers’ funds flow around… If you’ve also noticed these abnormal phenomena, congratulations—you are experiencing the power of the Quadruple Witching Day.

Quadruple Witching Day: Simultaneous Settlement of Three Derivative Products

The so-called U.S. Quadruple Witching Day refers to the concentrated settlement time of the four major U.S. equity derivatives—single-stock futures, single-stock options, stock index futures, and stock index options—all expiring on the same day.

Why is it called “Witching Day”? Because the prices of futures and spot tend to converge repeatedly on the eve of settlement, as if pulled together by an invisible “magical force.” This price movement, disconnected from fundamentals, often triggers intense volatility, hence the name.

The U.S. experiences four Quadruple Witching Days each year, occurring on the third Friday of March, June, September, and December. The dates for 2024 are:

• Q1: March 15 (Friday)
• Q2: June 21 (Friday)
• Q3: September 20 (Friday)
• Q4: December 20 (Friday)

Why does trading volume explode and prices fluctuate abnormally on Quadruple Witching Day?

What happens on this day? Simply put, three phenomena:

1. Trading volume amplifies, volatility widens
The trading volume on Quadruple Witching Day is usually more than twice the usual, making it one of the four days with the highest annual trading volume.

2. Market sentiment soars, turnover rate skyrockets
Holders of futures and options must settle on this day, leading to a flood of capital into the market and rising panic sentiment.

3. Stock prices deviate from fundamentals
Price movements on this day are no longer driven by company fundamentals or technical analysis but purely by capital flow battles.

The underlying logic is: futures are priced based on “future expectations.” If the outlook is bullish, futures prices will be higher than spot; if bearish, futures will be lower than spot. As settlement approaches, the spread between futures and spot gradually narrows, and the average spot price in the last hour can even become the settlement benchmark—this period is called the “Quadruple Witching Hour.”

Market makers also exploit this mechanism. Large capital flows before settlement push stock prices toward their most favorable levels. Oversold stocks are forcibly pushed up, overbought stocks are suppressed, ensuring derivatives settle at the most advantageous prices.

Actual Market Performance on Quadruple Witching Day

According to statistics, since 1994, the U.S. stock market has mostly been bullish. Therefore, the typical strategy of market makers is to force a rally in the spot prices on Quadruple Witching Day. However, the consequence is that: stocks that are overbought tend to drop within the following week 88% of the time, and the S&P 500 generally falls about 1.2%.

In other words, the gains seen in the hours before Quadruple Witching are often “false rallies,” with no fundamental support, just a result of capital battles.

There are exceptions, though. If the market is in a bearish environment that year, the market makers’ rally strategy may fail; or if too many retail traders try to “buy the dip,” they might overwhelm the market makers, causing prices to fluctuate abnormally.

The Actual Impact of Quadruple Witching Day on Different Investors

Long-term investors: Limited impact
If you are a fundamental investor holding for more than 5 years, you don’t need to pay attention to Quadruple Witching Day. Stock prices may fluctuate in the short term, but in the long run, they will return to fundamentals. The price swings on this day are just noise.

Short-term traders: Opportunities and risks coexist
Short-term traders, especially those focused on capital flow, see Quadruple Witching Day as a battleground. Price volatility from one week before to one week after Quadruple Witching Day is much more intense than usual.

• If you expect “oversold stocks will rebound,” you can position for a long trade
• If you anticipate “overbought stocks will fall,” you can short for profit
• But remember: this is purely a game of capital, unrelated to fundamentals, and strict discipline must be maintained—never chase the market

What should investors pay attention to in 2024’s Quadruple Witching Day?

The U.S. stock market is currently in an AI bull run, with no signs of a major reversal in the short term. Therefore, as usual, 2024’s Quadruple Witching Day is expected to continue the bullish trend, but only if no major black swan events occur.

Investors should closely monitor these four key dates, but most importantly:

• Use leverage cautiously to avoid forced liquidation during extreme volatility
• If holding derivatives, early position adjustments are safest to prevent liquidity issues and soaring trading costs at the last minute
• Clarify whether you are a long-term or short-term investor and adopt strategies accordingly

Quadruple Witching Day is not some mysterious magic; it is just a collective action of market participants at specific times. Understanding its mechanics allows you to turn risks into opportunities.