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An unusually large quarterly expiration of U.S. stock futures and options on Friday is likely to boost trading volumes and add to volatility, market strategists said, with some even expecting it to trigger a relief rally at the end of a turbulent week.

Friday marks the once-a-quarter, simultaneous expiry of stock options, stock index futures and index option contracts, with investors unwinding old positions and putting on new ones.

“Many market makers who sold puts hedged their exposure with a short market position,” said Michael Oyster, chief investment officer at Chicago-based Options Solutions.

“As those put options expire, the hedges are reversed, in this case through a short-covering purchase,” Oyster said, adding this could provide some support to the market.

About 64% of all S&P 500 index puts stand to expire “in-the-money,” while 96% of the June call open interest is set to expire “out-of-the-money” or worthless, Options Solutions said.

An option gives the buyer the right to buy or sell a security at a given price on a given date. Buying a call option is a bet the underlying asset will rise in price, while the opposite holds for a put option.

Analytic services SpotGamma said there are a significant number of deep “in-the-money” puts expiring, similar in size to when markets crashed in March 2020, referring to protective options that have risen in value due to the market’s fall.

“These positions are likely adding to the overall market volatility,” said SpotGamma founder Brent Kochuba.

Goldman Sachs estimated this week that about $3.4 trillion of U.S. stock options were set to expire on Friday, a much larger than usual quarterly figure.

U.S. markets will be shut on Monday for the Juneteenth holiday.

Some market participants expect more demand for hedging of portfolios as investors face a possible recession. A large number of bearish positions expiring could also provide some relief in the near term, they said.

The Federal Reserve’s 75 basis point interest rate hike on Wednesday and the possibility of more hikes to tame decades-high inflation has put the S&P 500 on course for its worst weekly performance since the pandemic-led crash in 2020.

The U.S. benchmark index is already in a bear market, after falling more than 20% from its all-time high.

“Now that the big Fed shoe has dropped, in the absence of other news, markets may take a breather...but a sustained recovery may remain elusive for now,” Oyster said.

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