2.2 trillion US dollar options contracts expire tonight, and the US stock market may face "turbulence and storms."

Founder of derivatives research firm Asym 500, Rocky Fishman, estimates that around $2.2 trillion of longer-term options contracts tied to stocks and indices will expire on Friday. This monthly event, known as OpEx (Options Expiration), requires investors to decide whether to roll over existing positions or establish new ones, leading to a significant increase in trading volume and potential sudden market volatility. This month's OpEx occurs at a crucial time as the S&P 500 index's upward momentum since the beginning of the year is being impacted, with investors betting a strong US economy will force the Federal Reserve to raise interest rates further. While OpEx typically provides a liquidity window for investors looking to restructure large positions, it also adds another layer of complexity to the volatile stock market, leading to intraday selling and fluctuations. Predicting the outcome of OpEx is futile, but historical data indicates that the stock market tends to rise after this event. For traders, the bigger challenge they face is the record popularity of zero-day-to-expiration (0DTE) options contracts. Scott Rubner, Managing Director at Goldman Sachs, points out that the significant trading volume of 0DTE contracts was the backdrop for the sharp acceleration of the S&P 500 index's decline on Tuesday, with the benchmark index dropping by around 0.4% in 20 minutes. Additionally, earlier this week, research from Nomura Securities and Citigroup showed a surge in trading volume for 0DTE contracts to record highs this month. Nomura Securities suggests that the rapid rise in popularity may be a result of the interruption in the stock market's upward trend over the past 10 months but could also be one of the reasons for heightened intraday volatility. Brent Kochuba, founder of analysis service company SpotGamma, advises investors to consider purchasing protection measures given the current low option costs. He says, "OpEx releases some directional changes, catalyzing it with next week's Jackson Hole Global Central Bank Symposium. Now is a reasonable time to buy some longer-term bearish options, as implied volatility has yet to respond to the decline in the S&P 500 index." The S&P 500 index has fallen for the third consecutive trading day as global bond yields surge. The index has dropped nearly 5% since August, potentially marking its worst monthly performance in 2023. For more cautious investors who use derivatives, making decisions about expiring options contracts may prove difficult this time. The S&P 500 index is expected to experience its third week of decline, increasing pressure to hedge losses. In fact, recent trading trends for 0DTE options tend to lean towards bearish options. However, due to stronger-than-expected economic data and rising corporate earnings expectations, investors have reason to believe that the current market pullback may be temporary. This is also the view of JPMorgan's trading desk, which expects the stock market to reach historic highs after recent volatility potentially caused by seasonal weakness and Federal Reserve policy uncertainty. Changes in market-maker positions are also worth noting. As the counterparty in options trading, market-makers buy and sell stocks to maintain a neutral market stance, a process known as "gamma hedging." Goldman Sachs indicates that market-makers switched to a "short gamma" position last week, marking the first time this year, and their activity could amplify market volatility. Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, suggests that given the position of market-makers, any stock market pullback could quickly worsen, especially with the Jackson Hole Global Central Bank Symposium potentially triggering market volatility. She says, "There are a lot of people saying the market is shifting from 'bullish' to 'bearish,' meaning as we sell stocks, we'll encounter more buyers of bearish options, who often exacerbate negative trends."