After a month of craziness, U.S. stock investors face a potential hurdle to overcome before the weekend: on Friday, options contracts related to stocks worth over $4.5 trillion will expire on the latest quarterly &#34;triple witching day.&#34;
The method of calculating the notional value of these contracts may vary depending on the approach used. However, a group of derivatives analysts at Goldman Sachs calculated this figure to be $4.7 trillion based on values as of Wednesday's close.
This will make the size of the options expiring on Friday the largest since December of last year, both in terms of notional value and as a percentage of the Russell 3000 index market capitalization. In December of last year, contracts worth approximately $6.6 trillion were either exercised or expired worthless.
Since options expiration often accompanies market volatility, there is usually a sense of unease in the market leading up to significant options expiration dates. On February 21, the last monthly options expiration date, the S&amp;P 500 index fell nearly 2%.
However, after a period of market turbulence (the S&amp;P 500 index briefly fell into correction territory earlier this month), some believe that the options expiration on Friday could actually help restore calm to the market.
Brent Kochuba, founder of options market data and analysis provider Spot Gamma, stated in an interview just hours before Federal Reserve Chairman Jerome Powell spoke to the media on Wednesday: “If the market rebounds slightly after the Fed meeting, then I actually think the impact of this options expiration will be relatively neutral in terms of its effects.”
After the Federal Reserve kept interest rates unchanged at its latest policy meeting and maintained its forecast for two rate cuts in 2025, the S&amp;P 500 index rose 1.1% on Wednesday.
During the recent weeks of stock market decline, investors have been buying put options. Data from the Chicago Board Options Exchange (Cboe Global Markets) shows that this led to a widening of the &#34;skew&#34; between out-of-the-money put options and out-of-the-money call options related to the S&amp;P 500 index to 7 percentage points earlier this month, the largest gap since 2022.
Put options give holders the right, but not the obligation, to sell the underlying stock at a predetermined price (the strike price). Call options give holders the right, but not the obligation, to buy the stock at the strike price.
Kochuba noted that the rising demand for downside protection has also caused a significant increase in the one-month implied correlation index of the Chicago Board Options Exchange (which tracks the relative implied volatility of options contracts related to the 50 largest market-cap stocks in the S&amp;P 500), as traders rush to buy individual stock put options.
Recent trading activity in the options market has been more active than usual. Data from the Chicago Board Options Exchange shows that in March, options contracts related to the S&amp;P 500 index averaged 4 million contracts traded daily. This is comparable to the record trading volume in February
However, with the stock market rebounding over the past few trading days, many of the put option contracts previously purchased by investors have become out-of-the-money options, meaning they will expire worthless.
This helps to shift the positions of options market makers from a &#34;negative gamma&#34; state to a state closer to neutral. When market makers are in a &#34;negative gamma&#34; state, their hedging activities tend to exacerbate market volatility, amplifying gains and losses.
The prices of option contracts have also declined. The Chicago Board Options Exchange Volatility Index (VIX, more commonly known as Wall Street's &#34;fear gauge&#34;) has fallen from a year-to-date high of 29.57. The index reported 20.24 on Thursday.
After the options expiration on Friday, the next significant event for options traders will come in about two weeks, when the quarterly options contracts for the end of March will expire. At that time, a large number of put option positions held by the JPMorgan Hedged Equity Fund will expire before the fund rolls over its hedged positions in early Q2.
Kochuba noted that the fund's put options have a strike price of 5565 points. This mutual fund employs a collar option strategy (by buying the underlying asset while simultaneously buying put options and selling call options to reduce overall costs and manage risk) to protect investors from losses while limiting some upside potential for the fund.
Rocky Fishman, founder of Asym500, stated that given all the other news affecting market trends that investors have had to contend with recently, including the Federal Reserve meeting earlier this week, this week's &#34;triple witching&#34; options expiration may be quieter than usual.
Fishman wrote in an email, &#34;With a lot of fundamental events happening this week, the impact of the technical aspects of options expiration is lower than usual.&#34;
&#34;Triple witching,&#34; which occurs quarterly, refers to the day when ETF, stock, and index options related to the S&amp;P 500 all expire simultaneously, occurring on the third Friday of March, June, September, and December each year, typically leading to a surge in trading volume and sudden price fluctuations in U.S. stocks

.SPX

In the upcoming quarterly "Triple Witching Day," over $4.5 trillion in stock-related options contracts will expire. This is the largest options expiration since December of last year and could trigger market volatility. Although historically, options expiration days are often accompanied by unease, analysts believe this expiration may help restore calm to the market. After the Federal Reserve kept interest rates unchanged, the S&P 500 rose by 1.1%

- U.S. stock investors face a significant event this Friday as options contracts worth over $4.5 trillion are set to expire on the latest quarterly "triple witching day."  
- Goldman Sachs analysts estimate the nominal value of these contracts at $4.7 trillion, marking the largest expiration since December 2022, which saw about $6.6 trillion in contracts executed or expired.  
- Despite potential market volatility associated with options expiration, some analysts believe it may help restore market calm following recent fluctuations, particularly after the Federal Reserve's recent policy meeting.

JIN10

The strongest "Triple Witching Day" of the year is here! Over $4.5 trillion in options are facing expiration