U.S. stocks may see volatility Friday as billions in quarterly options set to expire

As if investors didn’t already have enough to worry about, Friday’s expiry of quarterly options may provoke more volatility, potentially condemning the S&P 500 index to a fourth straight weekly loss.

To be sure, some options traders have taken issue with the Goldman chart, saying the data displayed by the bank doesn’t offer a complete picture of dealers’ overall exposure, which is very murky and something that almost nobody on Wall Street can accurately track. See: Triple witching day: analysts brace for volatility as $3.4 trillion in stock options set to expire Friday

It accomplishes this by buying a modestly out-of-the-money put contract, while selling both a covered out-of-the-money call and another put that’s much further out of the money. The result is that the fund is protected from market turbulence, but would sacrifice some gains if the market were to suddenly surge higher.

Smith says investors should pay close attention to the 4,210 strike, while analysts at Menthor Q highlighted the 4,200 as a potential “sticky” level for the market due to the popularity of strikes at that level. But if that level is breached and these puts trade in the money, a flurry of selling could follow.

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