[Derivatives ABC] What Is the 'Ne Manyeo-ui Nal' (Four Witching Days)?

[Asia Economy Reporter Ji-hwan Park] In the derivatives market, 'Four Witching Days' refer to the days when the expiration dates of four types of derivatives?stock index futures and options, and individual stock futures and options?coincide.

They occur on the second Thursday of March, June, September, and December each year. This year, the third 'Four Witching Day' has already passed.

Typically, stock prices tend to fluctuate significantly on Four Witching Days, especially showing high volatility during the closing minutes of trading. When this leads to a market decline, it is said that the witches are being mischievous. For this reason, the term 'witches (derivatives) being mischievous' is also called 'Quadruple Witching Day' in English.

On 'Quadruple Witching Day,' hidden spot stock trades related to derivatives are released into the market as liquidation sales. This is why unpredictable stock price movements occur.

For example, futures refer to a trading method where the price at which a transaction will occur on a future date?the expiration date?is agreed upon in advance. It is an investment strategy that profits from the difference between the current price and the future price.

When the arbitrage positions?either buying arbitrage or selling arbitrage?based on the price difference between spot and futures are released into the market on Four Witching Days, it causes unexpected sharp rises and falls in stock prices.