Skittish Stock Traders Are Bracing for $2 Trillion Option Expiration
Inflation is surging, central banks are on the move and now it’s earnings season. To top it all off, stock traders face the market-roiling potential of a monthly options expiration estimated at more than $2 trillion.
Roughly $495 billion in single-stock derivatives are set to expire Thursday, with another $980 billion of S&P 500-linked contracts and $170 billion in options tied to the State Street fund tracking the S&P 500 all running out as the holiday-shortened week ends, according to estimates from Goldman Sachs Group Inc.’s Rocky Fishman. Such volumes have been a source of volatility in the past year.
While nothing is ever assured in markets, indexes have exhibited a consistent pattern of declining on days when contracts are closed out. This time around, it comes as stocks are suffering through yet another bout of volatility, with the S&P 500 notching only four positive days since the start of the month.
It isn’t out of the ordinary to get a monthly expiration on a Thursday in April, but other “wrinkles arise because it can coincide with tax day and the start of earnings season, both of which we’re getting now,” said Steve Sosnick, chief strategist at Interactive Brokers LLC. The deadline for Americans to file their tax returns is April 18.
With monetary and fiscal support receding, investors have been hunkering down -- and the mood has turned gloomy. A survey by Bank of America Corp. showed fund-manager optimism about global growth is at a record low. The greatest number since 2008 are predicting a stagflationary period of lower growth and still-high inflation. Sentiment is “poor,” said the bank’s strategist. Managers remain in the “‘sell-the-rally’ camp,” and view previous selloffs as just an “appetizer.”
Others are dialing back their optimism. JPMorgan Chase & Co.’s Marko Kolanovic, once a steadfast bull, said investors who previously raised stock holdings should now take profits and shift some money to government bonds. Truist Advisory Services’ Keith Lerner downgraded his view on equities, cutting them to neutral from attractive, while saying that the range of potential economic and market outcomes was “unusually wide.”