Title: Massive Options Expiration Predicted to Ignite Volatility in Stock Market
Summary: The convergence of a major options expiration event and the rebalancing of key indices is expected to trigger a highly volatile trading session on Friday. Traders are closely monitoring this event, known as “triple witching,” as it could have a significant impact on the market. Despite bullish sentiments and record-breaking options contracts, experts advise against solely relying on these technical factors, as macroeconomic conditions play a crucial role in driving the market.
Options contracts linked to an astounding $5 trillion in stocks, exchange-traded funds, and indices are reaching their expiration date this Friday, marking the largest option expiration of the year. This event, commonly referred to as “triple witching,” coincides with the rebalancing of both the S&P 500 and Nasdaq-100 indexes. Market strategists predict that this simultaneous occurrence could ignite an extremely volatile trading session.
Throughout the week, trading volume has been steadily rising, with a staggering 17 billion shares changing hands on Thursday alone. The impending expiration could potentially become the largest SPX option expiration in over a decade, setting the stage for a high-stakes trading environment.
Bullish traders have been actively purchasing options contracts at an unprecedented rate, propelling the S&P 500 to nearly reach its all-time closing high. Despite initial warnings from options strategists about potential troubles at the 4,600 level on the S&P 500, these optimistic traders have managed to push the index to an impressive 4,700.
In fact, the S&P 500 closed on Thursday at its highest level since January 2022 and is now within a mere 1.75 percentage points of its record closing high. Such bullish sentiment has resulted in the Cboe Volatility Index, also known as the “fear gauge,” plummeting to multiyear lows.
This surge in options activity is not confined to the S&P 500 alone. Options tied to the iShares Russell 2000 ETF have witnessed their third-highest trading volume ever. Additionally, heavy call buying has caused the put-call skew for S&P 500 options to hit its lowest point in a year.
Historically, triple witching events tend to bring about more frequent intraday swings and higher trading volumes. Furthermore, after the market closes on Friday, the quarterly rebalancing of the S&P 500 and Nasdaq-100 will take place, garnering significant attention due to an irregular ad hoc rebalancing earlier this summer.
According to market participants, this expiration event could potentially remove the last barrier holding stocks back from reaching new record highs. However, experts provide a word of caution, emphasizing the need to consider macroeconomic factors alongside options-market activity and technical indicators, as they ultimately drive the overall market.
As investors brace themselves for an undoubtedly eventful trading session, eyes will closely watch how this convergence of events unfolds and how it may shape the trajectory of the market moving forward.
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