The Hidden Pattern of Quadruple Witching Day in the Trading Market: Investors Must Know

Seizing the Opportunities of Quad Witching Days for Short-Term Traders

If you’re an active trader in the US stock market, you’ve probably heard of a term: Quad Witching. These four days are characterized by intense market volatility, skyrocketing trading volumes, and heightened activity from large players. However, most investors are still in the dark, only knowing to avoid these days without understanding the underlying mechanics.

Why do Quad Witching days become critical points for market manipulation? Why do stocks often overperform and then pull back during bullish years? Why do short-term traders see them as golden opportunities? Today, we will thoroughly dissect this phenomenon.

The Market Magic of Derivative Expiry Dates

Quad Witching days are essentially the collective expiry dates for US derivative financial products. This includes four major categories: single-stock futures, stock options, stock index futures, and index options—all settle on this day.

The term “Quad Witching” comes from the fact that this phenomenon occurs four times a year, specifically on the third Friday of March, June, September, and December. As futures approach expiry, prices are forcibly pulled back to the spot level, as if an invisible force is forcing futures prices and spot prices together. This force is irrational, unrelated to company fundamentals.

Key Dates for Quad Witching in 2024

Investors planning to trade during these four days must prepare in advance. The dates for this year’s US Quad Witching are as follows:

2024 Quad Witching Dates

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

These dates are not just markers of time but also boundaries of risk and opportunity.

Why Do Quad Witching Days Trigger Market Volatility?

Understanding the volatility of Quad Witching days first requires grasping the relationship between futures and spot prices. When the market expects a bullish future, futures prices tend to be higher than spot; conversely, they are lower if bearish. As expiry approaches, this spread gradually converges, ultimately zeroing out in the last hour of the day (known as the “Quad Hour”).

Because of this inevitable convergence, sellers of derivatives (mostly large capital and institutions) will preemptively position themselves. They will use substantial funds to push stock or index prices to their advantage based on their positions.

Once these four types of derivatives enter the settlement cycle, the market becomes dominated by positioning. Fundamental and technical factors take a backseat. The result: trading volume surges, prices fluctuate wildly, and indices deviate from their intrinsic values.

How Arbitrage Strategies of Big Players Influence Stock Prices

This is the moment when big players exert their influence. According to historical data since 1994, US markets show clear patterns during Quad Witching.

Because the US stock market has been in a long-term bullish trend, big players generally expect prices to rise at expiry. But if the rise is less than expected, their futures or options contracts may incur losses. To prevent this, they often push prices higher just before and on the day of expiry, ensuring derivatives settle at higher prices and protecting their profits.

This leads to an interesting phenomenon: prices often overextend on Quad Witching days, but this overextension is fake and unsupported by new buying interest. Historical statistics show that 88% of overextended stocks decline within a week; the S&P 500 index averages a drop of 1.2%.

Investors call this phenomenon “Quad Witching Sell-off”—no matter how high prices go, the rally is fleeting, and a decline is inevitable.

The Hunting Ground for Short-Term Traders and the Trap for Long-Term Investors

The volatility during Quad Witching is simple: pure positioning, unrelated to fundamentals. This characteristic determines its vastly different impact on various investors.

If you’re a long-term investor, there’s no need to pay attention to Quad Witching. No matter how much prices fluctuate in the short term, they will eventually revert to fundamentals. Frequent trading based on short-term moves only increases costs and risks.

But if you’re a short-term trader or a momentum trader, Quad Witching becomes the most efficient hunting ground of the year. Because during these four days and the week before and after, capital flows from big players and retail investors are amplified tenfold. You can anticipate rebounds after oversold conditions or declines after overbought levels to go long or short accordingly.

However, this requires strict risk control. Short-term volatility can be fierce, and traders using leverage must always be alert to forced liquidations. Once you open a position, set stop-loss orders and avoid holding onto losing trades out of stubbornness, as this can turn small losses into big ones.

Market Expectations for Quad Witching in 2024

The basic rule is: bullish years tend to see overextensions, bearish years tend to decline.

Currently, the US stock market is still driven by AI concepts and remains relatively bullish. As long as no major negative shocks occur, future Quad Witching days are expected to continue the pattern of overperformance. Investors can plan ahead based on this logic.

Additionally, if you hold derivative products (futures, options), be prepared to roll over or close positions before these dates. Waiting until the last minute can reduce liquidity and significantly increase transaction costs, resulting in losses.

In summary, Quad Witching is not a day to hide from but a day to understand. Long-term investors can ignore it, while short-term traders should study it carefully. Once you grasp the underlying positioning logic, Quad Witching shifts from a risk point to an opportunity point.