The $6.6 Trillion Question: Can Markets Weather Triple Witching And Hawkish Fed Signals? Here's What This Analyst Says

Following a sluggish session on Thursday and a fall on Wednesday after the Fed’s hawkish rate cut, Wall Street is now bracing for Friday’s “Triple Witching” session which is slated to see about $6.6 trillion options to expire.

What Happened: The “Triple Witching” hour is a quarterly event that occurs during the final hour of trade on the third Friday of March, June, September, and December. During this period, contracts for stock index futures, stock index options, and stock options all expire at the same time.

According to the Singapore-based broker, uSMART, Friday, Dec. 20 marks the notorious ‘Triple Witching’ day, when the total options contracts worth $5.2 trillion on the S&P 500 index, $710 billion worth of contracts on single stocks and $735 billion worth of contracts on the Nasdaq 100, Russell 200 and others are set to expire.

💡This Friday's "Triple Witching Day" is expected to be the largest options expiration day in history, with a total of over $6 trillion in options tied to stocks, exchange-traded funds (ETFs), and indices set to expire. #stocks #ETFs pic.twitter.com/ExaqHgfzX5
— uSMART (@usmartsg) December 20, 2024

The total $6.6 trillion worth of option contracts can be further divided into four categories. Here’s what they include:

About $4.5 trillion notional worth of index options contracts.
$685 billion notional worth of options on futures.
$745 billion notional worth of options on exchange-traded funds.
$710 billion notional worth of contracts on single stocks.

“The timing of buying the dip is complicated by options expiration tomorrow and Christmas next week, but a recovery by the end of the year would not surprise anyone,” said Louis Navellier, founder of Navellier & Associates.

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Why It Matters: This “Triple Witching” convergence can lead to heightened market volatility as traders close, roll over, or offset their expiring contracts, often resulting in unusual price movements and increased trading volumes.

Looking back at the last few triple-witching events, the S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, has struggled during these high-stakes trading days.

Sept. 20, 2024: Decline of 0.2%.
Jun. 21, 2024: Decline of 0.5%.
Mar. 15, 2024: Decline of 1%.
Dec. 15, 2023: Decline of 0.6%.

Tech stocks, represented by the Invesco QQQ Trust ETF QQQ, fell in the last three triple-witching occasions, dropping 0.19% in September, 0.8% in June and 1.2% in March, while surging 0.5% in December 2023.

Price Action: U.S. stock futures declined, ahead of the ‘Triple Witching’ Friday. All four major indices were trading lower.

In premarket trading, the SPDR S&P 500 ETF Trust was down 1.05% to $579.97 and the Invesco QQQ Trust ETF fell 1.26% to $507.68, according to Benzinga Pro data.