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Here's The Names To Watch As Massive Options Expiration Looms

Tyler Durden's Photo
by Tyler Durden
Friday, Nov 19, 2021 - 08:21 AM

Today's "elephant in the room" for traders is the fact that 41% of SPX gamma expiring today. As SpotGamma notes, that is a very large number, and may invoke some unexpected volatility today. As we chronicled extensively the past week, we certainly think it will spur volatility next week.

The chart below shows the current distribution of gamma across strikes in SPX, and its rather remarkable.

We cannot recall seeing such a concentration at a single strike before – and this is the result of 18k calls and 23k puts to the 4700 strike.

You can also see (via the light grey area) that a very large percentage of 4700 strike gamma expires today – along with many other 4700 area strikes.

This is why we look for an “unpinning” of the 4700 area next week.

Additionally, $746bn of single stock options are set to expire today, the 3rd largest expiration for single stocks outside of a January

Single stock options open interest has increased to an all-time-high of $3.6tn, with $672bn of notional traded daily.

AMZN and TSLA have dominated recent activity, accounting for more than 50% of daily notional traded in single stock options.

As Goldman notes, while expiry days in 2021 have largely been associated with muted volatility - with the average S&P 500 stock broadly moving inline with other days - the first day of trading after expiration has realized sharply higher volatility, especially for stocks with high options trading volumes in the preceding days.

Today's expiry could be important for stocks with large open interest in at-the-money (ATM) options; market makers delta-hedging large options portfolios will be active. This flow is likely to dampen volatility in some names while exacerbating stock price moves in others.

As Goldman notes, in situations where there is a significant amount of expiring open interest in at-the-money strikes (strike prices at or very near the current stock price), delta-hedging activity can impact the underlying stock’s trading that day. If market makers or other options traders who delta-hedge their positions are net long ATM options, expiration-related flow could have the effect of dampening stock price movements, causing the stock price to settle near the strike with large open interest. This situation is often referred to as a “pin” and can be an ideal situation for a large investor trying to enter/exit a stock position. Alternatively, if delta-hedgers are net short ATM options (have a “negative gamma” position), their hedging activity could exacerbate stock price moves.

These are the names most prone to this flow...

Will the options tail wag the market dog once again? Or will the COVID chaos act as a catalyst that today's massive options expiration will exaggerate?

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