Bloomberg: A $2.2 Trillion Crunch Time Looms for Traders Loaded With Stock Hedges

Options Solutions in the News

(Bloomberg) — Stock investors, on guard for turmoil with everything from geopolitics to Federal Reserve hawkishness strafing their nerves, are bracing for a chaotic end to the week with $2.2 trillion of option expirations set to hit the market Friday.

The monthly event involves $545 billion of derivatives across single stocks scheduled to expire, Goldman Sachs Group Inc. estimates. About $985 billion of S&P 500-linked contracts and $165 billion in options tied to the world’s largest exchange-traded fund, the SPDR S&P 500 ETF Trust (ticker SPY), will run out, according to the firm’s strategist Rocky Fishman.

While the specific impact of the options market on stocks is never easy to quantify, equity indexes have shown a reliable pattern during the last year of lurching lower near the third Friday — the day when many stock derivatives are closed. This time, volume is being whipped up by traders searching for protection in a market where the S&P 500 has swung by more than 1% in all but two sessions this month.

“It’s just a tenuous time,” Steven Sears, president at asset-management firm Options Solutions, said by phone. “As the options market is pretty focused on short-dated expirations, it seems that more and more people are holding on to their positions until the bitter end. And that creates a herding effect of many people trying to run through a small door.”

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