Wall Street Braces for a $6.5 Trillion Shake-Up -- Will Stocks Break Free Next Week?
A wave of nearly $6.5 trillion in US equity options is about to roll off this Fridaypossibly setting the stage for a new round of stock market turbulence. Tesla (NASDAQ:TSLA) and other popular names sit at the heart of this quarterly triple witching event, where index options, single-stock options, and ETF contracts all expire at once. While the expiry itself may not trigger a sharp move on the day, the aftermath could look very different. Rocky Fishman, founder of Asym 500, called this one among the largest ever and flagged the potential for markets to finally break free from the tight range theyve traded in since May.
Whats held stocks in check? According to Fishman, a wave of defensive trades earlier this year effectively pinned the S&P 500 around current levels. During Aprils tariff-fueled volatility, many investors bought downside protection while selling upside calls near 6,000 betting the index wouldnt get that high. As those trades expire, that ceiling could lift. Its all tied to how dealers hedge. When markets are in a positive gamma regime, as they are now, dealers tend to smooth volatilitybuying when stocks drop and selling into rallies. But once those positions expire, that cushion may disappear.
Some strategists are watching closely. Matthew Thompson at Little Harbor Advisors sees these expiry windows as chances to make volatility plays in his ETF strategies. Citigroup analysts Vishal Vivek and Stuart Kaiser note that triple-witching days usually arent much more volatile than regular monthly expiriesbut this one stands out due to sheer size. Citi estimates $5.8 trillion in contracts are expiring, while Fishman includes additional index futures options to arrive at $6.5 trillion. Either way, the hedging flows that follow could be a key driver of what comes next.
This article first appeared on GuruFocus.
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