[Beginner's Guide to Stock Market] The 'Four Witching Days' That Shook the Market... What Are They?

Editor's Note[Joorini Guide] is a smart investment guide for 'Joorini' (stock + beginner) investors. We will kindly and easily explain stock stories that are unfamiliar to Joorini.

[Asia Economy Reporter Kwon Jaehee] Last Thursday, our stock market experienced turbulence.

During the session, there was significant volatility, with the KOSPI closing down 0.53% and the KOSDAQ closing down 0.58%.

Some of you might have thought it was just a day of decline since the market had risen a lot recently, right?

But did you know that this happens repeatedly on the second Thursday of March, June, September, and December, once every three months?

Is it just a coincidence?

It is due to the presence of the 'Four Witches' that shake our stock market.

Let's take a look at the 'Four Witches' Day.'

What is 'Four Witches' Day?

'Four Witches' Day' refers to the day when the expiration dates of four types of derivatives overlap: stock index futures and options, and individual stock futures and options.

It occurs every three months (the second Thursday of March, June, September, and December).

The recent 9th was exactly a Four Witches' Day.

On that day, the KOSPI closed at 2419.09, down 0.53%, due to massive selling by foreign investors.

So why does 'Four Witches' Day' occur?

Because unlike stocks, futures and options have a maximum holding period for the products.

Stocks can be held long-term for over 10 years or sold on the same day they are purchased.

However, futures and options have a fixed maximum holding period, so expiration dates occur.

In the Korean stock market, futures expire once every three months, and options expire once every month.

Futures expiration dates are on the second Thursday of March, June, September, and December, while options expire on the second Thursday of every month.

The simultaneous expiration date of futures and options is the second Thursday of March, June, September, and December.

Why do stock prices fluctuate on 'Four Witches' Day?

On this day, large-scale programmed trading often causes stock prices to fluctuate wildly, which is why it is called 'Four Witches' Day,' implying that the 'witches' (derivatives) are playing tricks.

So, what causes the large price fluctuations on Four Witches' Day?

Typically, on 'Four Witches' Day,' hidden spot stock trades related to derivatives are released into the market as liquidation sales, making it difficult to predict stock price trends.

For example, buying or selling arbitrage positions between spot and futures prices come into the market, causing unexpected price swings.

Volatility increases as investors who want to close positions and speculative investors aiming for volatility engage in trading.

Secondary battery stocks helpless... Which stocks survived?

Last Thursday, the 9th, also ended with a decline.

Secondary battery-related stocks, which had been on an unstoppable rally, were helpless on 'Four Witches' Day.'

Samsung SDI closed down 2.92%, and LG Energy Solution closed down 2.31%.

EcoPro BM fell as much as 5.79% during the session but closed down 1.91% at 205,000 KRW.

Additionally, SM Entertainment, which had recently been in the spotlight due to a management rights dispute, also fell after 7 trading days.

On the other hand, some stocks survived the whims of the 'Four Witches.'

Seokkyung AT, a nanotechnology specialist company, recorded the upper limit price following the successful development of a new lithium-ion conductor.

It closed at 36,450 KRW, up a remarkable 29.95%.

Also, security company KCS hit the upper limit price, rising 29.87% to 9,130 KRW, following news that the National Intelligence Service started reviewing its quantum cryptography communication products.

Dear Joorini investors,

Sometimes, even when fundamentals are good and prospects are bright,

you may feel anxious because you don't understand why stock prices are falling.

You may have experienced panic selling when your stocks dropped, unaware of futures and options expiration dates.

If you remember the 'Four Witches' Day' that comes every three months, this anxiety might ease a bit.

We support your wise investments today as well, and we will end this article here.

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This article is from [Joorini Guide], published weekly by Asia Economy. We explain stock-related financial news and difficult economic stories in an easy and friendly way so that stock beginners can understand. By clicking subscribe, you can receive articles for free.

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