Get ready for a wild ride! Options contracts tied to more than $5 trillion worth of stocks, exchange-traded funds and indexes are set to expire on Friday as the latest “triple witching” expiration event collides with the rebalancing of the S&P 500 and Nasdaq-100.
The result could be an extremely volatile session where tens of billions of contracts and shares could change hands, market strategists said.
According to figures from Rocky Fishman, founder of Asym500, options with a notional value of $5.3 trillion are set to expire, with the biggest slug expiring ahead of the open.
On one side, many traders will be cashing in bullish bets that are deep in the money, while some roll their positions, forcing market-makers to continue to hedge their exposure.
Already, the trading volume has been trending higher all week. In the U.S. market, 17 billion shares changed hands on Thursday, according to Steve Sosnick, chief market strategist at Interactive Brokers.
Don’t miss it! This might be the biggest options expiration ever! As markets have rallied, traders have been scooping up bullish options contracts at a record pace, according to data from Cboe Global Markets, the biggest operator of options exchanges in the U.S.
For S&P 500-linked options, typically the most popular product, 4.8 million contracts changed hands on Thursday, according to Cboe, a new record, surpassing the previous record from Nov. 14. Total call-trading volume for all U.S. equity options exceeded 30 million contracts on Wednesday, making it one of the busiest days for trading in bullish contracts this year.
Aggressive call-buying over the past month has helped push the S&P 500 to just shy of its record closing high. And it has continued to climb in December, having risen 3.3% through Thursday’s close, according to FactSet data.
Earlier this week, options strategists warned that markets might run into trouble at 4,600 on the S&P 500. They warned that a “call wall” of open-interest in bullish contracts around that level could force market makers to put the breaks on the rally.
