ultimateimp – Goldman Sachs strategist Scott Rubner has warned that Wall Street may face a market correction due to turbulence in the options market. In a Thursday note, Rubner stated that U.S. stock market derivatives worth approximately $2.7 trillion will expire on Friday. If these options are not exercised, the market could experience increased volatility and downward pressure on stock prices.
This expiration event, known as “quadruple witching,” often leads to sharp price swings as traders adjust their portfolios. Investors are bracing for potential fluctuations. Especially after recent record highs in the S&P 500 and European stock markets, which have now started to decline.
Market Decline Fueled by Trade War Concerns and Investor Pullback
Several factors are contributing to the current uncertainty. Former President Donald Trump’s recent tariff warning on pharmaceuticals, semiconductor chips, and wood has reignited fears of a broader global trade war. These tensions have made investors wary, leading to reduced risk appetite in equity markets.
Additionally, retail traders in the U.S. are slowing their trading activity as they prepare to pay annual taxes. March is also a period when retirement fund inflows into mutual and exchange-traded funds typically decline, further dampening market momentum.
Analysts caution that these factors combined could trigger a short-term pullback. Urging investors to remain vigilant and assess their risk exposure in the coming weeks.
Goldman Sachs Warns of Market Pressure as $2.7 Trillion in Options Expire
Goldman Sachs has highlighted a potential stock market correction as $2.7 trillion worth of equity options are set to expire on Friday. These options include bets on the S&P 500, exchange-traded funds (ETFs), and individual stocks, making this expiration a critical event for market stability.
Financial intermediaries and banks have hedged over $9 billion against these trades, which has helped suppress volatility in recent weeks. However, as these contracts expire. The protective measures that have been dampening market swings may unwind, potentially leading to sharper price movements.
Hedge Unwinding Could Trigger a Sell-Off
Dan Izzo, founder of BLKBRD Asset Management and a former bank trader, warned that if investors do not roll over their options bets, banks and intermediaries will need to unwind their hedging positions. This could create a momentary liquidity vacuum, intensifying downward pressure on stocks.
“The larger risk is if there’s no one willing to buy during this impact, we could see it trigger a broader market sell-off,” Izzo explained.
Goldman Sachs analysts advise investors to remain cautious as the expiration of these derivatives could lead to heightened market volatility in the short term.
