US Stock Quadruple Witching Day Operation Mechanism and Trading Practical Guide

Why Are Investors Afraid of Quadruple Witching Day?

Every year, there are four trading days when U.S. stock investors become especially cautious. These are known as U.S. Quadruple Witching Days—the days most prone to price swings. However, these fluctuations are not driven by changes in company fundamentals but are caused by the simultaneous settlement of a large volume of derivative financial products, resulting in market forces impacts.

The Essence of Quadruple Witching Day: Collective Expiration of Four Types of Derivatives

Quadruple Witching Day refers to the settlement dates for four major categories of U.S. derivatives. These include: single-stock futures, single-stock options, stock index futures, and stock index options.

The term “Witching” comes from the fact that all four products settle at the same time. As the settlement moment approaches, futures prices must converge with the spot prices. This invisible price pull is akin to being manipulated by a “wizard’s power,” hence the name.

Because U.S. derivatives settle quarterly, there are exactly four such days each year, occurring on the third Friday of March, June, September, and December. In other words, there are four Quadruple Witching Days annually.

The 2024 U.S. Quadruple Witching Schedule

For investors, knowing the exact settlement dates is crucial:

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

If you are trading with leverage, these days require especially heightened alertness.

Why Do Quadruple Witching Days Trigger Market Movements?

Quadruple Witching Days typically exhibit three prominent features:

1. Trading volume surges dramatically, and volatility increases

The nature of derivatives determines the market behavior on these days. Futures and options are traded based on “future prices.” When the market is optimistic, futures prices are higher than the spot; when pessimistic, the opposite. As settlement approaches, the spread between futures and spot prices narrows, especially in the last hour before settlement—known as the Quadruple Hour—where price volatility peaks.

2. Increased influence of big players and market manipulation

Settlement prices for derivatives are usually calculated based on the average spot price during the last hour of trading. This gives large institutional investors (commonly called “market makers” or “whales”) strong incentives to manipulate prices during this period. To protect their derivative positions, they may push down stocks that have fallen too much or suppress stocks that have risen excessively, moving prices toward their most favorable range.

This activity causes trading volume to spike to the highest levels of the year, often several times the average daily volume.

3. Prices diverge from fundamentals

When big players are controlling the market, short-term price movements are driven purely by supply and demand, disconnected from company performance or industry outlooks. This makes Quadruple Witching Days the most dangerous yet potentially profitable times.

Historical Patterns of Quadruple Witching: The Over-Expansion Trap in Bull Markets

Data reveals typical patterns for these days. Historically, because the U.S. stock market has been in a long-term bullish trend, market makers tend to push prices higher on Quadruple Witching Days to settle derivatives at elevated levels.

According to historical data (since 1994):

• In bullish environments, 88% of stocks that are overbought on Quadruple Witching Day tend to decline within the following week.
• During the same period, the S&P 500 index averages a decline of 1.2%.

The logic is that the inflated prices driven by market makers lack fundamental support. Once settlement is complete and they exit, there are few buyers, and prices naturally fall back. Speculative retail traders noticing these movements may also take profits, further accelerating the decline.

Of course, there are exceptions—if the overall market is bearish, Quadruple Witching Days may see declines instead; or if retail speculation is excessive, it can “burst” the market maker’s bubble.

How Do Different Investors Experience the Impact of Quadruple Witching Days?

Long-term Holders: Limited Impact

If you invest based on fundamentals with a long-term horizon, the short-term volatility on Quadruple Witching Days is insignificant. Stock prices will eventually return to their intrinsic value, and the price swings caused by derivatives are just short-term noise.

Short-term Traders: Major Opportunities

For traders focusing on supply and demand and short-term strategies, Quadruple Witching Days are the days with the highest trading volume and volatility throughout the year, offering abundant trading opportunities. Price swings within a week before and after these days are significantly higher than usual.

• If you expect oversold stocks to rebound, you can position for a long trade around these days.
• If you anticipate overbought stocks to decline, you can consider shorting.

However, it’s crucial to remember: this type of trading is purely based on supply and demand movements, unrelated to fundamentals. It’s only suitable for short-term operations. Never hold positions expecting the market to move in your favor if you are wrong; strict stop-loss discipline is essential.

Investment Recommendations for the 2024 U.S. Quadruple Witching Days

In 2024, the U.S. stock market continues to benefit from the AI concept bull run, so it’s expected that many of these days will see overbought conditions. As long as there are no major reversals, the bullish trend should persist.

Investors should focus on:

Derivatives holders should consider early position adjustments. If you participate via futures or options, unless you plan to hold short-term, it’s advisable to roll over positions before the day. As settlement nears, liquidity decreases, transaction costs increase, and additional slippage may occur during the rollover process.

Be alert to reversals after overbought conditions. Historical patterns show that overbought conditions on bullish Quadruple Witching Days tend to reverse within a week. Short-term traders can leverage this to deploy contrarian strategies.

In summary, U.S. Quadruple Witching Days are neither purely risky nor necessarily opportunities; they are a special trading window dominated by supply and demand forces. Understanding their mechanism, respecting their patterns, and strictly executing trading discipline are key to profiting amid volatility rather than being swallowed by it.