September 19th, Triple Witching Day triggers a $5.3 trillion options expiration wave. Will the US stock market experience a technical pullback?

This Friday (September 19) will become the largest options expiration date in U.S. stock market history. According to Goldman Sachs data, over $5.3 trillion in notional value of options are expected to expire simultaneously, setting a new record for September. The core of this event is—the approaching of the “Triple Witching.”

What is “Triple Witching”? Why is it so important?

Triple Witching refers to the phenomenon where stock index futures, stock index options, and individual stock options all expire on the same day. It occurs on the third Friday of March, June, September, and December each year. When these three types of derivatives settle simultaneously, market trading volume and volatility tend to spike, especially during periods when the Federal Reserve is adjusting policy.

Nearly 90% of call options are about to be closed, market support may disappear

The latest report from options analysis firm SpotGamma indicates that among the positions expiring soon, up to 90% are call options. Once these call options are closed out, the significant buying support that previously helped push the stock market higher will diminish. This suggests that after Triple Witching, the market may face downward pressure due to the loss of bullish support.

Gamma squeeze effects have driven this week’s rally, a correction may be inevitable afterward

Goldman Sachs analysts believe that on the eve of Triple Witching, the market often experiences a rise driven by the “Gamma squeeze” effect—automatic execution of large hedging trades amplifies upward momentum. Therefore, the upward trend in U.S. stocks this week is expected to continue. However, once the options expiration passes and this driving force disappears, U.S. stocks are likely to undergo a technical correction next week.

As of press time, the S&P 500 closed at 6,632 points, with a year-to-date increase of 12%. Since this Triple Witching coincides with the Federal Reserve’s rate cut decision, volatility may exceed historical averages.

JPMorgan: Corrections are opportunities; focus on October data and earnings season

In light of the upcoming market adjustment, JPMorgan advises investors to stay calm. The bank believes that any technical correction should be viewed as a buying opportunity rather than a sign of panic. It expects that the non-farm payrolls report, CPI data, and the Q3 earnings season scheduled for October will serve as triggers for a new wave of gains in U.S. stocks.

“Although there may be adjustments at the end of the month, U.S. stocks face explosive upside potential. Investors should position themselves during any pullback to prepare for the subsequent rally.”