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(Bloomberg) — Bulls are poised to lose some of the key strength that helped dampen turbulence in U.S. stocks amid this week’s macroeconomic drama on the back of a still-hawkish tilt by the Federal Reserve.

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About $4 trillion in options is expected to expire on Friday in a monthly event that tends to add chaos to the trading day. This time, with the S&P 500 stuck between 4,000 and 100 points for weeks, significant volume is providing a repositioning that could turbocharge the market. Given the harsh backdrop that has emerged in recent days, from interest rate hikes by global central banks to signs that the US economy is flagging, worries are growing that the expiration will act as an air pocket.

This is how David Reidy, the founder of First Growth Capital LLC, sees it. In his view, the market is stuck in a “long gamma,” where options dealers must go against the prevailing trend by buying stocks when they fall and vice versa.

Friday’s event “could break the tightness of the gamma exposure and lead to some dispersion, that is, a place for the index to break out,” Reidy said. “That would be a bearish move, given the year-end position adjustments and the macro-recession view.”

Options tied to the S&P 500’s 4,000 level make up the largest portion of open interest due to mature and acted as a peg to the index’s price in the weeks leading up to Friday, according to Brent Kochuba, founder of Spot Gamma.

Stocks were already under pressure Thursday as the European Central Bank joined the Fed in raising interest rates and warning of more pain. The S&P 500 fell 2.5% to close below 3,900 for the first time in five weeks.

That marks a key day when holders of options on indexes and individual stocks, which Goldman Sachs Group Inc. strategist Rocky Fishman estimates are worth $4 trillion, must either reverse existing positions or start new ones.

The event this time coincides with the quarterly expiration of index futures in a process ominously known as the triple witching. Added to this is the rebalancing of benchmark indices, including the S&P 500. The combination tends to produce one-day volumes that rank among the highest of the year.

“Between expiration and resets, Friday will likely be the last ‘liquidity day’ of 2022,” said Chris Murphy, head of derivatives strategy at Susquehanna International Group.

Options traders were bracing for turmoil ahead of this week’s consumer price report and the Federal Open Market Committee’s meeting later in the year. In a sign of heightened anxiety, the derivatives market did something unusual on Monday with the Cboe Volatility Index, a measure of the value of options known as the VIX, jumping more than 2 points while the S&P 500 rose 1.4%. It is the largest agreed gain since 1997.

“Essentially, all option prices associated with Friday were extremely high and very sensitive to implied volatility (and time decay) because they expire in just a few days,” SpotGamma’s Kochuba said. “As events unfolded, implied volatility (ie, the value of these options) eased, leading to hedging flows that delivered significant returns to the markets.”

The momentum was on display Wednesday as the S&P 500’s decline coincided with the VIX’s decline, again reversing their historical pattern of moving in opposite directions.

That unwinding of hedging removed one market support and opened the door to more volatility, according to Danny Kirsch, head of options at Piper Sandler & Co.

“Now that the event is over, the market is free to move more,” he said. “And a longer-longer Fed exercise is starting, plus the high probability of a recession next year.”

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