Market Downturn and ‘Triple Witching’ Ahead: Traders Brace for Volatility Amid $5.3 Trillion Options Expiry

The stock market experienced a downturn as major tech companies saw a sell-off, while the looming expiration of a significant number of options contracts on Friday posed a risk of sudden price swings.

Traders on Wall Street are preparing for what’s known as “triple witching,” a quarterly event where derivatives contracts tied to stocks, index options, and futures are set to mature. This prompts traders en masse to either roll over existing positions or initiate new ones. Approximately $5.3 trillion worth of contracts are set to expire this time, according to Rocky Fishman, founder of derivatives analytical firm Asym 500.

The timing of this options event is crucial as markets brace for the Federal Reserve’s upcoming policy meeting next week. Despite a recent uptick in inflation, economists surveyed by Bloomberg News believe it’s unlikely to alter officials’ forecasts for interest rate cuts, with three expected this year and four in 2025.

The S&P 500 index fell to around 5,130, accompanied by a trading volume that surged 40% above the 30-day average. The Nasdaq 100 also experienced a 1% decline, with Adobe Inc. plummeting due to a weak sales outlook. Nvidia Corp., however, saw volatility as it headed towards its 10th consecutive weekly gain. Meanwhile, Treasury 10-year yields rose above 4.3%, extending this week’s increase to almost 25 basis points.

Corporate highlights include:

• Nippon Steel Corp. reaffirming its commitment to completing the $14.1 billion acquisition of United States Steel Corp., despite President Joe Biden’s statement urging the company to remain in US hands.
• JD.com Inc. announcing its decision not to make an offer for British electronics retailer Currys Plc, following the withdrawal of US buyout firm Elliott Investment Management.
• Binance Holdings Ltd. tightening requirements for listing new digital tokens to enhance investor protections on its platform.
• Boeing Co. issuing a multi-operator message to operators of the 787 jetliner following an in-flight incident where the plane briefly and rapidly lost altitude, injuring multiple people on board.
• United Airlines Holdings Inc. nearing a deal to acquire three dozen or more Airbus A321neo jets from aircraft lessors to replace delayed Boeing Co. 737 Max 10 orders.
• Madrigal Pharmaceuticals Inc. receiving the first US approval for its drug Rezdiffra to treat a potentially deadly liver disease, succeeding where some larger competitors have failed.
• Reckitt Benckiser Group Plc experiencing a decline in its stock price after a jury awarded $60 million in damages to an Illinois woman, alleging that the company’s Enfamil baby formula led to the death of her premature baby.