Friday’s $2.3 trillion options expiration could remove a critical avenue of support for stocks, analysts say

Investors looking for signs as to whether the rally in U.S. stocks will continue in the latter half of August may find some meaningful clues on Friday, when $2.3 trillion in equity-linked options are set to expire, according to analysts from Spotgamma and Goldman Sachs Group Inc.

On Friday, Rocky Fishman, the head of index volatility research at Goldman, sent a chart to MarketWatch illustrating the different types of stock-linked options that are set to expire, as well as whether they’re set to expire in the morning, or in the afternoon in New York.

These include options tied to stock-market indexes like the S&P 500
as well as those tied to exchange-traded funds like the SPDR S&P 500 trust
and single-stock options as well.

Source: Goldman Sachs

Why is this important? As Fishman explained in a note in June, options expiration adds a layer of “positioning complexity” to the market. Since the Federal Reserve announced its second 75 basis points interest-rate hike in July, market strategists including JPMorgan Chase & Co.’s Marko Kolanovic have cited positioning as the critical factor driving markets higher, as investors chased the rally by putting money back to work in the market. While some have opted to buy stocks outright, others have favored short-dated options contracts, like the monthly and weekly contracts expiring on Friday.

See: JP Morgan quant who called summer rally says there’s plenty of ammunition to drive stocks higher — and here’s why

While Friday’s $2.3 trillion in notional value isn’t…


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