The Four Horsemen Day in 2024 is approaching: Market phenomena that U.S. stock investors must know

When it comes to investing in US stocks, many people have heard of one term—Quadruple Witching Day. As this date approaches, the market is often filled with warnings: prices will fluctuate significantly, beware of margin calls, and market makers may start to manipulate the market. But what is the root cause of all this? Why do the entire market experience such dramatic changes just because of a few specific dates?

The Truth About Quadruple Witching: A Market Feast of Derivatives Expiration

The essence of Quadruple Witching Day is quite simple—it is the day when the four major US derivative financial products settle simultaneously. These four types include single-stock futures, single-stock options, stock index futures, and stock index options. Every year, on the third Friday of March, June, September, and December, these contracts expire at the same time.

Why is it called “Quadruple Witching”? Because an invisible force influences prices on this day—when futures contracts approach their expiration date, futures prices are forced to converge with the spot prices. This non-fundamental-driven price tug-of-war is like some mysterious power manipulating the market, hence the nickname “Witch’s Power.”

In 2024, the four Quadruple Witching Days fall on the following dates: March 15, June 21, September 20, and December 20.

Why Does the Market Experience Intense Volatility on Quadruple Witching Day

Understanding this phenomenon requires a deep dive into the mechanics of derivatives. Futures and options trade on “future prices,” not the current spot prices. When investors expect the market to rise, futures prices tend to be higher than the spot; conversely, when they expect a decline, the futures prices tend to be lower. But as the expiration date approaches, this spread must narrow until it disappears.

The specific settlement method is key: exchanges typically use the average spot price during the last hour of trading on Quadruple Witching Day as the final settlement price. This last 60-minute window is also called the “Quadruple Hour.” This special time frame becomes a battleground for capital.

Market makers (usually large sellers of futures and options) hold the pricing power at this moment. To settle derivatives at the most favorable prices for themselves, they mobilize huge amounts of capital to push the spot prices higher. Since the US stock market has historically been in a bullish trend, market makers often choose to raise stock prices before settlement, allowing long positions in derivatives to profit while forcing short sellers to incur losses.

Meanwhile, savvy retail traders notice this pattern and preemptively position themselves, attempting to “eat the market maker’s tofu.” This results in a surge in trading volume and record-high price swings during Quadruple Witching Day. Historical data shows that in typical bullish years, 88% of overextended stocks decline within a week after Quadruple Witching, with the S&P 500 averaging a decline of 1.2%.

How Should Investors Prepare for the 2024 Quadruple Witching Day

Long-term holders can ignore the volatility around Quadruple Witching. Stock prices will ultimately revert to their fundamental values, and short-term capital battles are insufficient to change the long-term trend. Continue with your planned buy-and-hold strategy.

However, short-term traders should exercise extra caution. During the week before and after Quadruple Witching, market uncertainty increases significantly. Price movements during this period are mainly driven by technical factors, disconnected from company fundamentals or macroeconomic conditions. If you expect oversold stocks to rebound, you might consider going long around this period; if you believe overbought stocks cannot sustain their gains, consider phased short positions. But remember, this is purely a game of technicals and capital, so strictly follow stop-loss rules and never hold positions waiting for fundamentals to revert.

Regarding derivatives positions, if you participate via futures or options, be sure to close or roll over your positions at least a week before Quadruple Witching. Contracts nearing expiration tend to have deteriorating liquidity, higher transaction costs, and last-minute rollovers often lead to additional slippage.

The Special Context of 2024’s Quadruple Witching Day

Currently, the US stock market is still immersed in a bullish wave driven by AI concepts. As long as this trend does not reverse sharply, the next four Quadruple Witching Days are likely to continue exhibiting bullish characteristics. This means that market manipulation by large players will still push prices upward, and short-term opportunities will remain.

But market risks are always lurking. Paying close attention to macroeconomic data, Fed policy signals, and changes in the fundamentals of tech stocks is essential for steady operation amid the volatility of Quadruple Witching. Whether seizing opportunities or avoiding risks, preparation is always the first step to successful trading.