Friday's close could be a wild one

"I’ve never seen an environment where you’ve had so many potential overhangs in the market that can not be controlled." -- David Wagner

From Lu Wang's "Stock Traders Brace for $3.5 Trillion Triple Witching Event" posted Thursday on the Bloomberg:

Wall Street traders are bracing for fresh equity-market fireworks Friday after another week of global turbulence.

In a quarterly event known as triple witching, roughly $3.5 trillion of single-stock and index-level options are set to expire, according to Goldman Sachs Group Inc. At the same time, more near-the-money options are maturing than at any time since 2019 -- suggesting a bevy of investors will actively trade around those positions.

And once again, this triple witching coincides with a rebalancing of benchmark indexes including the S&P 500 -- a combination that tends to spark single-day volumes that rank among the highest of the year. According to an estimate from Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, the rebalance in the index alone could spur $33 billion of stock trades.

In the telling of derivatives pros, the recent rally has been fueled by dealers covering short positions to balance exposures while demand for stock hedges is elevated.

Now as many contracts expire, the key question is whether investors will rebuild their holdings of protective puts amid growth concerns and the war in Ukraine -- or will they chase the market rebound with call contracts.

“I’ve never seen an environment where you’ve had so many potential overhangs in the market that can not be controlled,” said David Wagner, a portfolio manager at Aptus Capital Advisors. “We’ll see if people can see to redeploy their puts.”

My take: This could be one of those days when the tail wags the dog.

2 Comments

  1. David Emery said:
    Closed at $163.98 (and then went up after-hours…)

    0
    March 18, 2022

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