JPMorgan's Kolanovic: "$1.3 Trillion In S&P 500 Options Expire On Quad-Friday"

With Nasdaq 'VIX' reaching 15-year highs relative to S&P 'VIX' in the last week, we suspect Friday's quad-witching will be a little more noisy than normal as traders scramble to cope with $1.3 trillion of expiring S&P options...

JPMorgan's Marko Kolanovic lays out the details...

In our view, it will be difficult for the market to go much higher from these levels (~2,450) unless there is meaningful progress on US fiscal reform (i.e. tax cut).


Current positioning of various investors is already quite high and that poses additional risk going into weak seasonals.



Low volatility and positive price momentum resulted in high leverage of systematic investors: CTAs are likely at their ~95th percentile of equity exposure, Volatility targeting funds are likely at maximum equity exposure, and other investors (such as equity long-short and risk parity funds) also have above average equity exposure and leverage.

Certainly, the last month has seen a regime shift in Risk Parity funds from the year-to-date upward thrust...

But it is Friday;'s quad witch which has Kolanovic most worried:

The impact of S&P 500 derivatives has been supporting the market going higher in the first few days of this week (expiry momentum)...


...and will turn into a headwind next and the following week (reversion of expiry effect, and reversion due to monthly/quarterly rebalances).


$1.3T of S&P 500 options expire on Friday, and this will change dealers’ positioning (half of the long gamma positions will expire).


This can result in market volatility starting on Friday and into next week.

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 Friday, 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 Friday... and positioning suggests any pain will quickly feed on itself.


Peak Finance Thu, 06/15/2017 - 22:06 Permalink

LOL1.3TLong GammaAnd they paid DEARLY for those optionsLOL might be a bear day after all! Just cry to momma Yellen she will make it right, they only need 20 points to get paid 

Boston7708 Thu, 06/15/2017 - 22:04 Permalink

Markets up up up
Metals down down
Bitcoin down up up
Fed 1.3 trillion printed tomorrow but we will remain hawkish and normalize the balance sheet hahaha

SybilDefense Boston7708 Fri, 06/16/2017 - 09:01 Permalink

You have to laugh at this crap. All the numbers are going down yet we remember on a daily high basis all the promises that was called the Trump bump.  Yet when something good for gold presents (oh, like NK threatening Nukes, or that we are on the brink of civil war and edging closer in 15 min intervals) this information is immediately "forgotten".  Like "hey... Donald said the word infrastructure last week and stocks go up every day".   But conversely IF something supportive for gold is allowed to leak, spot goes up in the am, but tanks in the PM (the 2:30 monkey hammer).  It's like all of the bad scary stuff of yesterday that gave gold a +$20 is no longer there and not only that it is even better -$30 better. "N K nuke estimates are adjusted to only 4.2 bn mega ultra Uber tons instead of 4.3 bn mega ultra Uber tons.  All Is Well !Holy friholies. I mean sometimes shit should be allowed to stink.  It's only natural

In reply to by Boston7708

DrumpFired Thu, 06/15/2017 - 23:20 Permalink

The way I look at american brokers is JPM is gainst Goldman. Goldman is more secretive and therefore makes the better decisions but they do not let every one know that. That is why Shepwave analysts split off.  They at Shepwave have been makin predictions on short term market moves that are unable to make unless there were some maniplation. That is my theory anyway. 

hedgesofnight DrumpFired Thu, 06/15/2017 - 23:47 Permalink

True but there is some holes in your theory:  1. no on on Zeroehdge is a real trader. 2. Zerohedge has great articles but sometimes let's face it, there is probably not a whole lot of truth to them. 3. the people on here are getting really abusive which is why  number 1 is true.  All the real traders have gone away. Just keep following them and lockin in those short term profits. They are killing it!

In reply to by DrumpFired

Erwin643 Fri, 06/16/2017 - 02:52 Permalink

Oh Yeah! Bring it on!!!I placed sell limit (and buy to call) orders on all my short-volatility trades when SVXY hit $160.00 for the THIRD time on the 14th, and couldn't close above it.Currently shorting silver. When SVXY drops all the way down to its 20-week EMA, I'm back in!

jmack katchum Fri, 06/16/2017 - 07:10 Permalink

What he is saying is that the smart (big) money has sold their long positions (just look at Buffet's cash position), thus they need to drive prices down so that they can reposition for another move up... meaning that they may take positions that profit from moves down (aka increases in volatility), until we see a 6 % or 10% or 20% correction to the downside.    The fed has obviously signaled that they are hiking come hell or highwater, the same guys that did not fight the fed in QE etc and rode the wave up, are not going to fight the fed hiking and clearing its balance sheet, and will ride the wave down.  For a guy like Buffet, being in cash is the same as being short.…

In reply to by katchum

Russdiamon Fri, 06/16/2017 - 11:16 Permalink

I wonder what kind of impact that has on the market when it’s already been moving down a little. You should check out what this guy has been saying though, he’s been calling for a drop around this time for awhile. He has a great track record for market timing. I definitely recommend taking a look.check this out