What to Know about tomorrow's Options Expiration

Goldman Sachs' latest note on tomorrow's July options expiration highlights a significant event in the options market. This Friday is projected to be the largest July-options-expiration on record, driven by a rebound in growth for index and ETF options volumes. The firm estimates that over $2.7 trillion of notional options exposure will expire, including $555 billion in single stock options. Typically, July is one of the smaller expiration months, with January, March, June, September, and December being the largest.

Options expiring represent a notional value equal to 4.7% of the Russell 3000 market capitalization. This makes the relative size of this expiration higher than the average for July.

There has been a pickup in index options and single stock call options volumes, while single stock put options volumes have remained steady. However, volumes for zero-day options and longer-dated options are lower this quarter compared to the previous one. Nearly half of the S&P 500 options continue to be zero-day options, maintaining a balance between puts and calls. which helps explain the choppy market conditions witnessed ahead of the recent selling pressure.

This data provides insights into the trading behavior of market participants, showing a high proportion of small trades, which indicates active participation from smaller investors or hedging strategies.

In summary, the upcoming July options expiration is set to be a record-breaking event, with significant notional exposure and higher-than-average relative size. The note from Goldman Sachs provides valuable insights into the distribution and volume of options, as well as the trading behaviors observed in the market, which can help investors and traders make informed decisions.