The first quarter "Quad Witching Day" is here on Friday! NVIDIA options trading becomes a highlight.

Investors will welcome the first options expiration day of the year this Friday - Quadruple Witching Day, with the trading situation of the popular Nvidia options in the US stock market expected to be one of the key focuses.

The "Quadruple Witching Day" in the financial market is a quarterly expiration day for financial derivatives in the US stock market, occurring on the third Friday of March, June, September, and December each year, when stock index futures, stock index options, individual stock futures, and individual stock options all expire on the same day.

The last trading hour of that day is called the "Quadruple Witching Hour", during which investors are eager to close positions, often leading to a sharp increase in trading volume and intensified market volatility. Therefore, "Quadruple Witching Day" is usually accompanied by significant short-term fluctuations in stock and derivative prices.

According to data from the Stock Trader's Almanac, historically, the US stock market is more likely to rise in the week of the first quarter's "Quadruple Witching Day". In the past 41 years, the Pro UltrPro Shrt S&P 500 has risen 27 times, and the NASDAQ Composite Index has risen 25 times. In recent times, the Pro UltrPro Shrt S&P 500 and Invesco QQQ Trust have risen in 12 out of the past 16 "Quadruple Witching Weeks".

However, the week following the "Quadruple Witching Week" is quite the opposite. The Pro UltrPro Shrt S&P 500 has fallen in 27 out of 41 years - often by a significant margin. In 2018, the Pro UltrPro Shrt S&P 500 fell by 5.95%, and the Invesco QQQ Trust fell by 6.54%. The significant gains in the following week for the Pro UltrPro Shrt S&P 500, such as 4.30% in 2000, 3.54% in 2007, 6.17% in 2009, and 10.26% in 2020, seem to be rare exceptions in history.

Analysis suggests that the highlight of this year's first quarter "Quadruple Witching Day" may be the trading situation of the popular Nvidia options in the US stock market.

Wall Street News previously reported that with the rising enthusiasm for artificial intelligence, a large number of investors are betting on the rise of Nvidia's stock price through the options market. Data shows that traders poured as much as $20 billion into Nvidia options in the last week of February, far exceeding other companies in the "Magnificent 7".Over the past month, Nvidia's options trading accounted for a quarter of the single-ticket options market. These options include those that prevent Nvidia from falling to $350 in March, as well as options that will generate profits if the stock rapidly rises to $900 or even higher in the coming months. Nvidia fell 3% to $891.56 on Wednesday.

Last Friday, Nvidia's stock price plummeted by 5%, with a volatility of 10%. Some analysts believe that a large number of bullish Nvidia options being exercised last Friday caused a drastic shake in the stock price. Options market makers buy Nvidia stocks to hedge risks when selling bullish options, and then unwind the hedge by selling the stocks after the options are exercised. As the weekend approached, traders began to exercise Nvidia's in-the-money bullish options, prompting options traders to sell Nvidia stocks to unwind their hedges, leading to the sell-off last Friday.

In addition, "zero-day expiry options" (0DTE) have also been a focus of attention. Earlier reports suggested that zero-day expiry options may be the culprit behind the volatility in the US stock market.

Zero-day expiry options, also known as same-day expiry options, have less than 24 hours until expiration, allowing for significant returns within a few hours. However, the high potential returns also come with substantial risks, akin to "picking up coins in front of a steamroller." The high volatility means that even a slight fluctuation in the S&P 500 can cause these options to swing from worthless to extremely valuable within minutes.

Currently, Wall Street brokers are aggressively launching various new strategies to grab a share of the market. Since Options AI introduced options linked to the Pro UltrPro Shrt S&P 500 in December last year, trading volume has doubled; another company, Moomoo Technologies, has waived trading fees for newly launched index contracts. Webull Financial LLC has allowed customers to sell derivatives without owning the underlying assets for the first time, Robinhood Markets offers zero-day expiry contracts for some exchange products, and plans to expand its business to a wide range of index options later this year.

According to media compilation data, trading volume of Pro UltrPro Shrt S&P 500 contracts surged by 48% last year, six times that of the broader options market. Cboe Global Markets, at the heart of this trend, estimates that retail investors account for as much as 40% of the trading.

The risks associated with zero-day expiry options have also attracted market attention, with the prosperity of trading raising questions about the industry's ability to monitor leveraged investors. In the "Senior Credit Opinion Survey on Trader Financing Terms" in September 2023, the Federal Reserve included specific questions about risk management practices and client activities in zero-day expiry options trading.