Equity options worth $2.1 trillion in notional value are set to expire on Friday in the latest monthly event where weekly and monthly options tied to single stocks, equity indexes and exchange-traded funds expire, risking an explosion of volatility across markets.
Every month, a team of analysts from Goldman Sachs publishes a breakdown of the options that are expiring. And one of the most notable details from this month’s report is a chart showing how much trading has shifted to options contracts with 24 hours or less left before they expire.
Trading in these types of options now represents 44% of all trading in options linked to the S&P 500 index. They now trade an average of $470 billion in notional value per day, according to Goldman.
Options directly linked to the S&P 500 make up a plurality of all equity options expiring in the U.S. on Friday, as Goldman illustrated in the chart below.
Another notable trend in equity-derivatives trading this year has been increasing trading in options linked to indexes and exchange-traded funds. Previously, investors had favored options linked to individual stocks. But trading volume in these options has declined this year, although it remains elevated compared to its pre-pandemic level.
Investors will be paying particularly close attention to Friday’s options expiration after the equity put-call ratio — which measures trading volume of certain equity-linked options compared with trading volume in equity-linked calls — exploded to levels unseen since 2001 earlier this week.
Most equity-linked options expire after the close of the trading day, but some index-linked options expire in the morning, according to CME Group.
One month ago, Nomura’s Charlie McElligott told clients that professional traders are increasingly buying options with one day to expiration or less, a trading strategy that he said first gained notoriety on the popular subreddit “Wall Street Bets.”