Once again, it's the "Triple Witching Day" for U.S. stocks! $6.5 trillion in options expiration may trigger significant volatility

According to Zhitong Finance APP, investors are preparing for the expiration of $6.5 trillion in nominal value of U.S. options this Friday, which could lead to greater volatility in the stock market.

Each quarter, multiple different categories of exchange-traded derivatives contracts expire simultaneously on the same day, a phenomenon known among market observers as "triple witching." While the market does not expect significant volatility on Friday itself, there may be a risk of sudden fluctuations in the stock market after that day.

Since early May, the intraday volatility of the U.S. stock market has been relatively mild, partly due to the "pinning effect" brought about by a large number of put options established at the beginning of the year. The so-called "pinning effect" refers to the tendency for stock prices to close near the strike prices of options with high trading volumes as the expiration date approaches. At that time, the likelihood of the S&P 500 index rebounding to near historical highs seemed very slim. Rocky Fishman, founder of research firm Asym 500 LLC, stated that these trades have helped maintain market stability.

In early April of this year, amid significant market volatility triggered by tariffs, many pessimistic investors bought hedging tools for a market downturn and financed these protective positions by selling call options slightly above the current level of the S&P 500 index (5981 points). Rocky Fishman said, "For the past few months, we have been dealing with the tariff turmoil, and many believed that the 6000-point level was hard to reach, so they sold call options in that area to raise funds for their protective options at other positions." He noted in a recent report that Friday's options expiration is "one of the largest ever."

The actions taken by market makers and brokers to hedge their own positions can also have a significant impact on the stock market and further feedback into the overall market. Rocky Fishman pointed out that since early May, despite the turmoil in the Middle East and ongoing tariff negotiations, the market has performed steadily, partly due to the hedging operations of market makers. He believes the market is in a so-called "positive gamma" state, where market participants tend to sell when prices rise and buy when prices fall, thereby suppressing volatility.

Matthew Thompson, co-investment manager at Little Harbor Advisors, stated that in contrast, during the tariff turmoil in early April, many intermediaries were forced to sell stocks when the market fell and were then forced to cover when the market rebounded, further exacerbating market volatility.

Matthew Thompson mentioned that he closely monitors options expiration events such as "triple witching," as this helps him manage tactical positions in the stock ETFs he oversees to respond to changes in volatility He stated, "What we are mainly focused on is market makers and how they hedge all risk exposures."

A study by Citigroup strategists Vishal Vivek and Stuart Kaiser shows that quarterly "triple witching days" typically do not bring more volatility compared to monthly options expiration dates. However, the strategists recently mentioned in a report to clients that Friday's triple witching day has "special significance."

According to Citigroup's estimates, $5.8 trillion in nominal outstanding equity options will expire on Friday, including $4.2 trillion in index options, $708 billion in U.S. ETF options, and $819 billion in individual stock options. The higher figure proposed by Rocky Fishman—around $6.5 trillion—also includes the nominal value of stock index futures options, which will also expire on Friday