S&P 500 Slides Ahead of Massive “Quad-Witching” Options Expiration

S&P 500 – Talking Points

• S&P 500 slips after failing to break above resistance at 3980
• August retail sales come in hotter than expected, 0.3% vs. 0.0% est.
• “Quad-witching” occurs Friday, options expiration totaling $3+ trillion

Equities are pushing lower today as traders prepare for Friday’s “quad-witching” options expiration. Building on this week’s losses, today’s price action in equities comes following a hot retail sales report in the premarket session. The data this morning was mixed, as August retail sales came in hot but July’s print was revised considerably lower. Markets still remain in limbo following this week’s CPI report, as traders question the possibility of a 100 basis point rate hike from the Federal Reserve next week. Treasury yields have been on a tear as market participants continue to reprice Fed expectations, with the 2-year yield reaching 3.86% today.

US Economic Calendar

Courtesy of the DailyFX Economic Calendar

Friday is notably a “quad witching” session which could exacerbate any pre-FOMC volatility. Quad-witching occurs quarterly, when stock index futures, stock index options, stock options, and single stock futures all expire on the same day. Roughly $3.2 trillion of options are set to expire this Friday, which may cause a flurry of activity as market participants look to roll and/or trade what they hold. According to Goldman Sachs, roughly $2 billion is tied to the S&P 500 while $500 billion is tied to single stocks.

S&P 500 Futures 1 Hour Chart

Chart created with TradingView

S&P 500 futures finally made the break lower this morning following retail sales data. After spending much of the afternoon yesterday and the overnight session just below 3980, bears were able to flush price through the post-CPI lows. As we look to tomorrow’s options expiration and next week’s FOMC meeting, I would like to see price test the 3900 area before thinking about longs. Confluence of fib and psychological support in this area could allow for bulls to make a renewed assault on higher prices, which may materialize should the Fed decide against raising by 100 basis points. As long as price remains below resistance at 3980, I would look for downside continuation into the key 3900 area.

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— Written by Brendan Fagan

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