ETFs
$5.5 Trillion in Options Set to Expire on Triple Witching Friday: Why Nvidia Could Take a Roller Coaster Ride
Nvidia Corp. (NASDAQ:NVDA) shares could be on a roller coaster ride on Friday, as trading in contracts tied to the chipmaker surged ahead of a record “triple witching” expiration in June.
Investors have been buying Nvidia at a feverish pace, sending open interest in Nvidia call options higher than similar contracts tied to the S&P 500 SPX and a popular ETF that tracks the large-cap index, data shows SpotGamma, MarketWatch reported.
Nvidia’s 10-for-1 stock split last week – and the fact that its weighting in the $71 billion range Sector SPDR ETF Selected for Technology (NYSE: XLK) is expected to surge via a rebalance on Friday – which has helped increase interest in bullish bets on the stock.
“Nvidia has the most expiring options on the market” AI Options co-founder CC Lagateur said Friday morning on Benzinga’s “PreMarket Prep” show.
Also read: Friday’s triple witching hour kicks in: Traders brace for volatility as $2.7 trillion worth of derivatives expire
The triple witchcraft of Friday: According to an estimate from options platform SpotGamma, Friday’s triple witching will see some $5.5 trillion in options linked to indexes, stocks and exchange-traded funds disappear from the board.
As contracts disappear, investors will adjust their positions, adding a burst of volume capable of swinging individual holdings, Bloomberg reported.
Goldman Sachs analyst John Marshall estimated that Friday’s options expiration “will be the largest on record” with more than $5.1 trillion in notional options exposure expiring, driven by a record notional of $870 billion in single stock options.
“This exceeds the notional value of options that expired in December 2023 ($4.9 billion), which was the previous record,” he said in a note.
Friday’s options decline represents a notional value equal to 9.3% of the Russell 3000’s market cap, Marshall said.
“The relative size of this expiration is larger than most months, just after December 2023,” he said.
“Single stock index option and call option volumes increased, while single stock put option volumes decreased.”
This quarter’s expiration comes as implied volatility in S&P 500 options is near its lowest level since before the coronavirus pandemic, with the U.S. benchmark riding a rise in shares of Nvidia and others companies related to artificial intelligence.
The expiration coincides with the rebalancing of the index, when the S&P Dow Jones Indices change company weightings and ETFs that track its indicators make similar adjustments.
NVDA Price Action: Nvidia shares were down 1.8% at $128.42 at the time of writing on Friday, while the Technology Select Sector SPDR ETF was trading slightly higher at $229.02.
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