(Bloomberg) — Wall Street’s massive expiration of options not only left stock traders more cautious, it also drove one of the leaders of the bull market to a roller-coaster ride.
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About $5.5 trillion are estimated to expire Friday during the quarterly “triple witching” in which derivatives contracts tied to equities, index options and futures mature. This time around, Nvidia Corp. is playing an added role. The value of contracts tied to the chipmaker due Friday is the second-largest of any underlying asset, lagging only the S&P 500. The expiration coincides with index rebalancing by S&P Dow Jones Indices.
To Steve Sosnick at Interactive Brokers, the “key” rebalance will occur in the Technology Select Sector Index — which is the benchmark for the $80 billion XLK exchange-traded fund.
“Nvidia’s index weight will rise dramatically, mostly at the expense of Apple’s,” he noted. “Considering the outsized importance of megacap tech stocks overall — and Nvidia in particular — upon broad market indices, it is not unreasonable for traders to be wary about outsized movements late in the day.”
As the contracts disappear, investors will adjust their positions, adding a burst of volume capable of swinging individual holdings. The S&P 500’s trading volume was 45% above the past month average. Nvidia almost erased a plunge of about 5% before pushing lower again. Apple Inc. outperformed.
The S&P 500 fell to around 5,465. Nvidia lost about $200 billion in two days. Its market cap was about $3.1 trillion on Friday, lower than Apple at $3.2 trillion and Microsoft Corp. at $3.3 trillion.
Treasury 10-year yields were little changed at 4.25%. France’s risk premium over Germany closed at the highest since 2012.
The ongoing AI frenzy that briefly made Nvidia the world’s most-valuable company this week also drove record inflows into tech funds, said Bank of America Corp. strategists. About $8.7 billion flowed into tech funds in the week through June 19, according to a note from the bank citing EPFR Global data.
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