Another "three witches day" in the US stock market! The expiration of $6.5 trillion in options may cause severe volatility.

Investors are preparing for the expiration of $6.5 trillion worth of nominal value options in the United States this coming Friday, which could lead to larger fluctuations in the stock market. Every quarter, various types of exchange-traded derivative contracts expire on the same day, a phenomenon known among market observers as "triple witching". While the market does not expect significant volatility on Friday itself, there is a risk of sudden fluctuations in the stock market after that day. Since early May, the intra-day volatility of the US stock market has been relatively moderate, partly due to the "pinning effect" brought about by a large amount of put option trading established at the beginning of the year. The so-called "pinning effect" refers to the tendency for stock prices to close near the strike prices of options with high trading volumes as the options expiration date approaches. The possibility of the S&P 500 index rebounding to near historical highs seemed very slim at that time. Rocky Fishman, the founder of research firm Asym 500 LLC, stated that these trades helped maintain stability in the market. In early April this year, when tariffs caused significant market fluctuations, many pessimistic investors bought hedge instruments for market declines and financed protective positions by selling bullish options slightly above the current level of the S&P 500 index (5981 points). Rocky Fishman stated, "Over the past few months, we have been dealing with the tariff storm and many people thought that the 6000 point level would be hard to reach, so they sold call options in this area to fund protective options elsewhere." In a recent report, he mentioned that Friday's options expiration was "one of the largest ever". The actions taken by market makers and brokers to hedge their positions will also have a significant impact on the stock market and further feedback into the overall market. Rocky Fishman pointed out that since early May, despite the turmoil in the Middle East and ongoing tariff negotiations, the market has remained stable, in part due to market makers' hedging operations. He believes that the market is currently in a state of "positive gamma", where market participants tend to sell on upswings and buy on downturns, thereby suppressing volatility. Matthew Thompson, co-portfolio manager at Little Harbor Advisors, stated that during the tariff turmoil in early April, many intermediary institutions were forced to sell stocks when the market fell and had to cover when the market rebounded, further exacerbating market volatility. Thompson mentioned that he closely monitors events like "triple witching" and other options expirations, as they help him manage tactical positions in the stock ETFs he oversees to deal with changes in volatility. He said, "We are primarily focused on market makers and how they hedge all risk exposures." A study by Citigroup strategists Vishal Vivek and Stuart Kaiser shows that quarterly "triple witching" days typically do not bring more volatility compared to monthly options expiration dates. However, the strategists noted in a recent report to clients that Friday's triple witching has "special significance". According to Citigroup estimates, there will be $5.8 trillion of outstanding nominal equity index options expiring on Friday, including $4.2 trillion of index options, $708 billion of US ETF options, and $819 billion of individual stock options. The higher figure proposed by Rocky Fishman, approximately $6.5 trillion, also includes the nominal value of stock index futures options expiring on Friday.