Breakfast Bites - Last Options Expiry of 2023

Rise and shine everyone and happy Friday.

It’s Options Expiration Day. Today is what’s called “triple witching” - when options tied to single stocks, ETFs, and indexes will expire, alongside index-tracking futures contracts. According to Morningstar, there’s a whopping $5.3 trillion in notional expiring today.

“Upcoming options expiration said to relate to 80% of S&P 500-linked contracts, which would be the largest such expiration in at least 20 years, maybe ever. “Triple witching” expiration event collides with the rebalancing of the S&P 500 and Nasdaq-100.”

That’s sure to bring us some volatility during the day. After this week though, it would seem that the path of least resistance is still higher. Yesterday’s pullback in most of the large-cap tech names was likely some profit-taking and selling to settle margin calls, after the strong up move that’s now spread to the Russell 2000 small-cap index as well.

The Russell-2000 small-cap index hit a 52-week high yesterday, erasing most of its losses for the year. The index is now up +13% year-to-date and even more remarkable, it’s up close to 23% since its lows at the end of Oct, making this move in just 48 days!

What we’re watching on the back of this are regional banks. With rates declining, the prospect of stability sees some light and all those unrealized losses suddenly start to look less scary. Add to that, their mortgage book starts to look better and we could actually see a jump start in new mortgage business. CNBC had an article 2 days ago titled: “Mortgage refinance demand jumps 19% after rates hit the lowest level since July”.

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