According to Goldman Sachs Group Inc (NYSE:GS), roughly $3.5 trillion of single-stock and index-level options will expire in a quarterly event, dubbed triple witching, reports Bloomberg. Concurrently, more near-the-money options are maturing than ever since 2019, suggesting investors will actively trade around those positions.
The triple witching coincides with a rebalancing of benchmark indexes, including the S&P 500. According to an estimate from a senior index analyst at S&P Dow Jones Indices, the rebalance in the index alone could spur $33 billion of stock trades.
Friday’s session lands just as the S&P 500 regains with a three-day jump, lifted by the Federal Reserve’s optimism that the economy can withstand rate hikes and China’s promise to bolster its financial markets.
The S&P 500 has climbed almost 6% over the past three sessions in the best rally since 2020, as Marko Kolanovic at JPMorgan Chase & Co (NYSE:JPM) urges investors to go all-in.
With market sentiment weak and institutional-fund exposure to equities near multiyear lows, caution in the derivatives market is everywhere. The 20-day average of the Cboe put-call ratio for equities, for example, hovers near a two-year high.
According to Goldman strategist Rocky Fishman, with a considerable number of S&P 500 contracts sitting close to the spot price, trading activity on Friday looks more frenetic than usual.
“The most interesting is options near the money since as we approach expiration, there’s uncertainty about whether or not they end up in the money,” he said. “That uncertainty can lead investors to trade around those positions actively.”
