1.4 Trillion Reasons Why Today's 'Quad Witch' Could Matter

Tyler Durden's picture

In 2015, options expirations mattered - stocks would tear higher into the event and like clockwork sink back lower after.

2016 was not so obvious but the all-important 'quad-witch' expirations still had some bias.

However, if JPMorgan's equity derivative strategists are right, today's 'quad-witch'  - with $1.4 trillion worth of S&P 500 notional set to expire - could lead to a vicious cycle higher in volatility going forward. It is notable that VIX has been entirely decoupled from stocks for over 6 weeks now.


Right as Catalsyt Fund liquidation chatter began (forced buying due to the gamma in their options strategy - which is likely heavily used across many funds).


VIX Call volume relative to put volume has collapsed to pre-December op-ex.


Which brings us to tomorrow's 'quad-witch' options expiration. As JPMorgan's equity derivatives group warns, on Friday, ~$1.4Tr notional of S&P 500 options expires.

As the market drifted lower over the past roughly two weeks and option positions were rolled higher into/following Feb expiry, the gamma imbalance fell significantly and is now only moderately tilted toward calls (~$15Bn per 1% now vs. ~$50Bn into last month’s expiry).

[NOTE - there is a huge pin around 2250 - puts and calls - which just happens to be around the level at which Catalyst's strategy started to implode]

The gamma imbalance remained tilted toward calls throughout the past two weeks, and thus dealer hedging activity likely continued to depress market volatility.

However, the majority (~70%) of the imbalance expires on Friday, likely leaving dealers close to flat post expiry (assuming spot roughly unchanged), and the gamma imbalance remains highly sensitive to spot moves near current levels and would be flat if the S&P 500 fell just ~1% (Figure 3).

This suggests dealers could be taken short gamma relatively quickly on a selloff (particularly if it comes ahead of March expiry).

In english, Friday's expiration could change options dealers' positions in a manner that could leave them more likely to feed into any uptick in stock market volatility going forward, and after tomorrow, dealers' positions in S&P 500  options will change so that any stock market selloff could quickly see dealers boosting volatility as they hedge their positions.

Or even more simply put, the foot on the throat of volatility could well be lifted tomorrow... and positioning suggests any pain will quickly feed on itself.

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FatTony7915726's picture

Bring it bitch.....i mean witch!  Come & get some.

Bay of Pigs's picture

15 upvotes in a few mintutes for spam?

You think any ZHer here believes that is accurate fuckhead?

zeroedgesd's picture

Who cares.  I read the article and it is an ad so you may be right.  But I have seen a bunch of ZHers jump on the bandwagon at much stupidity. 

zebra77a's picture

Something is up look at the VIX futures expirng Apr huge OTM volume.. expecting spikes to 20 range ..


But this contract buyer isn't touching uvxy and the backwardation instruments.. which are fat happy equity leaches ..

I found the same thing roughly 3 days after open contracts dropped there was a selloff in the markets back to a typical moving average. Seemed to work every time as long as the market was above the moving average.

In this case so much dumb money is piling in atm I would not be short wait for the institutionals to finish there dumping to the greater fool..

JRobby's picture

The level to which you test our patients on a daily basis is catching up to it.

lasvegaspersona's picture

The options are deflation or hyperinflation. HI will win in the end but Janet might try to smear Trump with some pain first....seems to be the plan.

stocktivity's picture

"the gamma imbalance remains high"

Fuck You Central Bankers!

NugginFuts's picture

So up or down? Or both at the same time?

Bryan's picture

I assume an increase in volatility would follow (or cause?) a decrease in equity prices...?

GUS100CORRINA's picture


and ... SHTF!!!

ParkAveFlasher's picture

Second chart only proves bias in the author's brain.  So stuff went down after going up?  That's analysis?

Giant Meteor's picture

That is correct. Sideways in the rolling donut from hell.


Bay of Pigs's picture

Wake me up when we see 1000 point drops a day for an entire week.

Then I'll believe in volatility again.

GUS100CORRINA's picture

Bay of Pigs ...

Speaking of Volatility ...

Very recently, I took a look at volatility and picked several leveraged 'short' ETFs. TVIX, SDS, SQQQ, TZA, etc..

Placing a short trade of these ETFs would have been like an annuity with a huge return with very little risk. In essence, you never would have had to cover the investment. For example, in the fall of 2009, you could have shorted TZA at around 20,000 dollars and today it would cost you 18 dollars to cover. How is that possible unless CBs manipulated the system? Every short ETF has this type of return.

In a word: UNBELIEVABLE!!!

Zorba's idea's picture

Careful Gus, those triples can bite hard if you stick around too long

mily's picture

This is how leveraged, daily compounded shit works. Each one is different, take a look at contango / backwardation for leveraged etfs that use futures to mirror daily moves of underlying (VIX, Oil, Softs), other use index swaps. Please also note in bull market you get long periods of steady gains (for leveraged etfs it usually means steady decay as you mirror 2x or 3x inverse daily move (compounding) - thats why it never goes to zero and will require reverse split every now and then). Check inverse leverage "sucess stories" (i.e. how DWTI behaved when oil prices plunged in 2014) Hope this helps 

weezer's picture

Dude, tvix will rip your face off.  Do I speak from experience?  Absolutely.  During last year's volitility I was positioned well.  Then a little meeting with odipstick, yellen and I think was Carney and the BOE and volatility stopped and the market went straight up, thereby, leaving one's face detached from one's body...

PlayMoney's picture

Hell i'll get excited over a 1% drop. I don't even remember what the look like.

stocktivity's picture

Wasn't that supposed to happen March 15th when the debt ceiling expired?  It's all Bullshit!!!

Osmium's picture

Who the hell would buy options on the VIX?  Calls are WWWWAYYY to expensive.

mily's picture

Buy lottery tickets well OTM 

Secret Weapon's picture

Nothing will happen.

GooseShtepping Moron's picture

I wonder how much of this is due to retail investors just dumping their 5% employer match into their 401(k)s and letting it sit there come what may, content in the belief that markets only go up.

Vlad the Inhaler's picture

I'm going to pick up some VIX calls tomorrow against my better judgment. VVIX is at 2014 levels, it can't get much lower.

overbet's picture

Money meet fire on those vix calls.


I wish I would stop seeing bearish calls everywhere still so we can fucking sell off already. I took the exact opposite heat being long this fucking market last year when we tanked under 1900. These moves are too harsh and dragged out anymore.

Snaffew's picture

true dat---let's throw the fucking towel in already and have everyone agree "all is well".  This country is so divided right now, that I doubt we will ever see much of a dichotomy between the bearish and bullish camps---it still seems to be 50/50 which favors this grinding rise we have been getting.

mily's picture

VVIX in 2014 was around 60 so way to go (now ~78)

SheHunter's picture

OMG don't get my hopes up.  This tame, pollyanna market is boring me to hives.

C'mon VXX !  Bring it on. 

Pinky and the Brain's picture

When they expect it to be flat THEN it will move.  hahahahaha

SheHunter's picture

Agree.  It tanked late yesterday and today just to thumb its nose at everyone who bought going into the Lady Yeller meeting.

Ajax_USB_Port_Repair_Service_'s picture

Oh! What a great day to monkey hammer gold and silver!

Erwin643's picture

Don't think anything much will happen. Been doing just fine shorting volatility. As strong as SVXY is right now, it might drop and hit its 4-day moving average, since it was flying high again today, shooting through its top Bollinger Band, but that's about it. Starting to go into "overbought" (really strong) territory on RSI, but real overbought isn't until +85 on RSI.

Silver is holding above it's 4-month moving average, after hitting it's head and coming back down from its 50-month MA. The seasonality is about right for another attempt, where maybe it breaks through this time. In other words, I'd buy more USLV, etc., right now (already have alot of the physical stuff).

alphasammae's picture

It is only fed fiat paper anything whichever goes it is just a meaningless paper hallucination. 

Zorba's idea's picture

Alpha, please find your beta...hurry!

Grandad Grumps's picture

In the big scheme of things it means much less than a battle fought 5000 years ago... even less than a law create by the Romans.