Quarterly ‘triple-witching’ days are associated with volatility, but experts believe this month’s might actually help restore a sense of calm

It’s that time again: Investors are facing another quarterly “triple-witching” event on Friday.

After a wild month for the U.S. stock market, investors have one more potential obstacle to overcome before the weekend: On Friday, options contracts tied to more than $4.5 trillion in stocks will expire during the latest quarterly “triple-witching” event.

Calculations to determine the notional value of these contracts can vary, depending on the methodology used. But a team of derivatives analysts at Goldman Sachs put the figure at $4.7 trillion, based on values as of Wednesday’s close.

This would make Friday’s expiration the biggest since December, when contracts worth roughly $6.6 trillion were either exercised or expired worthless. That’s true both in terms of notional value, as well as their value as a percentage of the Russell 3000’s market capitalization.

A sense of trepidation typically colors the run-up to a major options expiration due to their reputation for volatility. On Feb. 21, the day of the last monthly expiration, the S&P 500 index fell by nearly 2%.

But after a rocky stretch for markets that saw the S&P 500 briefly dip into correction territory earlier this month, some said Friday’s expiration could actually help restore a sense of calm.

“If the market rallies a bit after the Fed, then I actually think it will be a pretty neutral expiration in terms of its impact,” said Brent Kochuba, founder of SpotGamma, a provider of options-market data and analytics, during an interview with MarketWatch on Wednesday — a few hours before Federal Reserve Chair Jerome Powell spoke to the media.

The S&P 500 gained 1.1% on Wednesday after the Fed left interest rates on hold at its latest policy meeting and kept its forecast for the number of rate cuts expected in 2025 unchanged at two.

As stocks sold off over the past few weeks, investors piled into bearish put options. This caused the “skew” between the price of out-of-the-money puts and the price of out-of-the-money calls tied to the S&P 500 to steepen to 7 points earlier this month, the widest spread since 2022, according to data from Cboe Global Markets.

A put option gives the holder the right, but not the obligation, to sell the underlying stock at an agreed-upon price, known as the strike price. A call gives the holder the right, but not the obligation, to buy at the strike price.

Rising demand for downside protection also caused the Cboe’s one-month implied correlation index — which tracks relative implied volatility for options contracts tied to the 50 largest stocks in the S&P 500 — to shoot higher as traders loaded up on single-stock puts, Kochuba said.

Activity in the options market has been busier than usual lately. On average, 4 million contracts tied to the S&P 500 have traded per day in March. That’s on par with the record activity seen in February, Cboe data showed.

But as stocks rebounded over the past few sessions, many of the bearish contracts investors had purchased have moved out-of-the-money, meaning they were on track to expire worthless.

That has helped to shift options market makers’ positioning from a “short gamma” posture to something closer to neutral. When market makers are “short gamma,” their hedging activity often exacerbates market swings, amplifying gains and losses.

Prices for contracts have also declined. The Cboe Volatility Index (VIX) has retreated from its year-to-date high of 29.57. The index, better known as the VIX or Wall Street’s “fear gauge,” stood at 20.24 on Thursday.

After Friday’s options expiration, the next big event for options traders will arrive in about two weeks, when quarterly contracts expire at the end of March. At that time, a massive put position maintained by the JPMorgan Hedged Equity Fund (JHEQX) is due to expire before the fund rolls over its hedges at the beginning of the second quarter. The fund’s puts are sitting at the 5,565 strike price, Kochuba said. The mutual fund employs a collar strategy to protect investors from losses while limiting some of the fund’s upside.

Rocky Fishman, founder of Asym 500, said this week’s triple-witching expiration could be less eventful than usual given all of the other market-moving news investors have recently had to contend with, including the Fed meeting earlier in the week.

“In a week with tons of fundamental things happening, the technical opex effect is less relevant than usual,” Fishman told MarketWatch via email.

Triple witching only happens once a quarter. It derives its name from the fact that monthly contracts tied to stock indexes, ETFs and individual shares are all due to expire alongside futures contracts based on major indexes like the S&P 500.

U.S. stocks were volatile in Thursday’s trading, with the S&P 500, Nasdaq Composite and Dow Jones Industrial Average all giving up morning gains in early-afternoon trading.