The U.S. stock market will usher in the first "triple witching day" of the year on Friday, that is, the three contracts of stock index futures, stock index options and individual stock options expire and settle on the same day. This time, options linked to more than $5 trillion of individual stocks, exchange-traded funds (ETFs) and stock indexes will expire today.

Index options worth $3.2 trillion notional will expire at the open, with the vast majority of contracts tied to the S&P 500. After that, $1.9 trillion in options tied mostly to individual stocks and index-tracking ETFs will expire at the close, according to data from Asym500.

This quarter’s triple witching is still large compared with recent history but is expected to be lower than the $5.3 trillion seen in December.

Raising the prospect of big market moves, individual stock options volumes in March are on track to surpass cash equities trading for the first time since late 2021, when stocks peaked before plunging into a bear market in 2022, according to Goldman Sachs.

Goldman Sachs analysts said the surge in options market activity was largely driven by bets on semiconductor stocks, with contracts tied to Nvidia Corp. (NVDA) again among the highest in demand. Traders continue to favor calls over puts on semiconductor stocks and other popular options, according to SpotGamma data.

“Friday was a very significant triple witching day, dominated entirely by bullish call options positioning,” SpotGamma founder Brent Kochuba said in a client note shared with MarketWatch on Thursday.

Large “triple witching days” tend to stimulate increased volatility in underlying stocks and indices prior to expiration.

“We tend to think there is strong evidence that the large number of call option expiries will lead to a decline in the stock market,” Kochuba said.

U.S. stocks closed lower last week, with the S&P 500 up just 0.5% so far this week. If the index records another weekly loss, it would be the first time it has fallen for two consecutive weeks since late October, according to FactSet.

Nvidia is still up 0.5% for the week as of Thursday's close, with shares closing at $879.44, but the stock has seen some big swings over the past few days. Meanwhile, weakness in the rest of the semiconductor space has weighed on the iShares Semiconductor ETF (SOXX), which is down 3.4% for the week.

A call option represents a bet that a stock, ETF, or index will rise before the contract expires, while a put option represents a bet that the underlying security or index will fall. Notional volume measures the value of a contract based on the value of the units of the stock or index underlying the contract. Typically, each contract is tied to 100 shares or units of the underlying asset or index.

Article forwarded from: Jinshi Data