The largest "Triple Witching Day" in history is coming! $6.6 trillion worth of options are about to expire

According to Zhitong Finance APP, this Friday marks "triple witching," which is expected to be the largest options expiration day in history. Statistics show that over $6 trillion in options linked to stocks, exchange-traded funds (ETFs), and indices are set to expire. According to data provided by Asym 500, the specific figure is $6.6 trillion, while some institutions estimate the nominal value to be even higher, reaching $7.7 trillion.

Typically, the market experiences the most active trading wave at the opening. At that time, most options linked to the S&P 500 index will be exercised or expire worthless. Rocky Fishman from Asym 500 stated that with a statistical value of $6.6 trillion, this quarterly options expiration day will set a historical record. However, he added that compared to the options expiration in December last year, the expiration amount this time has decreased relative to the total market capitalization of U.S. listed stocks. In December last year, the total market capitalization of the U.S. stock market was $48 trillion, while it has now risen to $62 trillion.

Quarterly options expirations are usually closely monitored by traders, and this one is particularly important as it follows a significant sell-off triggered by Federal Reserve policy earlier this Wednesday. Due to concerns that the Federal Reserve may be nearing the end of its interest rate hike cycle, the Dow Jones Industrial Average plummeted by over 1,100 points on Wednesday. Meanwhile, the Chicago Board Options Exchange Volatility Index (VIX) recorded its largest single-day increase since 2018. The level of this index is influenced by S&P 500 options trading.

Additionally, the latest data on the Personal Consumption Expenditures (PCE) price index, set to be released on Friday morning, may further exacerbate market volatility. eToro U.S. investment analyst Bret Kenwell stated, "The PCE report on Friday becomes particularly important. If the data is higher than expected, it may intensify the recent selling pressure; while if it is lower than expected, it may alleviate Wall Street's concerns about re-inflation."

Brent Kochuba, founder of SpotGamma, pointed out that prior to Wednesday's market sell-off, the options positions expiring on Friday were heavily skewed towards call options, with the number of open contracts for call options far exceeding that of put options. However, this situation has changed in the past 24 hours, although the number of open call options still remains higher than that of put options.

Kochuba indicated that as these put options expire or are rolled over, they may provide some stabilizing effect on the market. This is because the flow of hedging funds from traders may suppress volatility rather than exacerbate it. However, he also warned that Wednesday's sell-off may just be a "preliminary shock," potentially signaling a more painful decline in early 2025.

Once a quarter, options contracts linked to individual stocks, ETFs, and indices such as the S&P 500 will expire alongside major stock index futures contracts. Derivatives market experts refer to this as "triple witching day," as days with such large-scale derivatives contract expirations typically accompany higher trading volumes and market volatilityFor investors, this Friday will be a key time point that requires close attention. With the dynamic adjustments in the options market and the release of PCE data, the future direction of the market may become clearer