Options Trades Exceed Stocks for the First Time Since 2021 as $5 Trillion in Contracts Comes Due Friday.

Options linked to a staggering sum of over $5 trillion in stocks, exchange-traded funds (ETFs), and equity indexes are slated to reach their expiration on Friday during the quarterly triple witching event, where numerous monthly contracts converge to expiration alongside index futures.

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At the opening bell, index options boasting a notional value of $3.2 trillion will expire, with the majority of these contracts associated with the S&P 500. Subsequently, at the market close, options worth $1.9 trillion, primarily linked to individual stocks and ETFs tracking indexes, will reach their expiration, as per data provided by Asym 500. Although still substantial compared to recent occurrences, this quarter's triple witching is anticipated to be somewhat smaller than the $5.3 trillion notional value observed in December.

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Heightening the potential for significant market fluctuations is the surge in single-stock options volume in March, poised to surpass trading in cash equities for the first time since late 2021, according to data from Goldman Sachs. Notably, during that period, stocks had reached their previous peaks preceding the 2022 bear market. A considerable portion of this surge in options market activity stems from wagers on semiconductor stocks, with contracts related to Nvidia Corp. once again witnessing significant demand, as highlighted by analysts at Goldman. Traders have consistently shown a preference for calls over puts in both semiconductor stocks and other popular options plays, based on data from SpotGamma.

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Founder Brent Kochuba of SpotGamma emphasized in a note to clients, shared with MarketWatch, that Friday's triple witching event is characterized by a substantial presence of call positions. Such days of significant triple witching often lead to heightened volatility in the underlying stocks and indexes as expiration approaches.

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Kochuba noted, "We tend to view call-heavy expirations as leading to contractions in stocks, for which there is strong evidence." Indeed, this pattern has been evident in the recent market activity, with U.S. stocks closing lower the previous week, and the S&P 500 registering only a modest 0.5% gain this week. Another session in negative territory could result in the index marking its second consecutive weekly loss for the first time since late October, according to FactSet data.

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Although Nvidia has maintained a 0.5% increase this week through Thursday's close, with its share price ending at $879.44, the stock has witnessed substantial fluctuations in recent days. Concurrently, weakness observed elsewhere in the semiconductor sector has pulled down the iShares Semiconductor Index to $220.34 per share, marking a decline of 3.4%.

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In options trading, call options represent bullish bets anticipating a rise in the underlying security or index before the contract expires, while puts reflect bets on a decline. Notional volume gauges a contract's value based on the value of shares or units of the index it controls, with each contract typically tied to 100 shares or units of the underlying asset or index.

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