By Medha Singh
June 17 (Reuters) – An unusually large quarterly expiration of U.S. stock futures and options on Friday is likely to boost trading volumes and add to volatility, market strategists said, with some even expecting it to trigger a relief rally at the end of a turbulent week.
Friday marks the once-a-quarter, simultaneous expiry of stock options, stock index futures, and index option contracts, with investors unwinding old positions and putting on new ones.
“Many market makers who sold puts hedged their exposure with a short market position,” said Michael Oyster, chief investment officer at Chicago-based Options Solutions.
“As those put options expire, the hedges are reversed, in this case through a short-covering purchase,” Oyster said, adding this could provide some support to the market.
About 64% of all S&P 500 index puts stand to expire “in-the-money”, while 96% of the June call open interest is set to expire “out-of-the-money” or worthless, Options Solutions said.
An option gives the buyer the right to buy or sell a security at a given price on a given date. Buying a call option is a bet the underlying asset will rise in price, while the opposite holds for a put option.
Analytic services SpotGamma said there are a significant number of deep “in-the-money” puts expiring, similar in size to when markets crashed in March 2020, referring to protective options that have risen in value due to the market’s fall.