$5.3T worth of options expire, stocks under pressure

Yahoo Finance's Madison Mills joins the live show to provide insights into key market developments.

A broad market sell-off is unfolding Friday, as options contracts worth $5.3 trillion are set to expire today. This massive options expiration, coupled with the market hitting its March lows, may have contributed to heightened volatility. However, the elevated trading activity has boosted the S&P 500 index (^GSPC) to 40% above it's average level.

The Treasury market has also experienced turbulence, with the 10-year yield approaching 2024 highs. This yield movement has captured investors' attention, as they scrutinize its potential implications ahead of the highly anticipated Federal Reserve meeting scheduled for next week.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

JOSH LIPTON: Moving on. Stocks posting weekly declines, and it comes ahead of next week's key Fed meeting. Madison Mills is here with a look at some of the takeaways from the day. Madison.

MADISON MILLS: Well, it's a beautiful holiday here. I'm not talking Saint Patty's Day. It's triple witching, you guys, which we love to talk about here. Right? We've got a little bit of a sell-off going on, which could be related to these options expirations tied to today to the tune of $5.3 trillion. So some of my sources at NICEy this week were saying that Stock Exchange that that could be one of the reasons that we're seeing a little bit of the volatility this week. The S&P 500's volume was 40% above the average throughout today's trade, partially due to those options expiring today.

Now one of the things that was interesting to note earlier in the week after we got some hotter than expected inflation data and originally on, I think Tuesday at the market was up after that data. Again, when I was at the Stock Exchange, folks were saying, don't extrapolate this as a growth story. This is about those options expiring on Friday. This is not about the market necessarily having some big take on the Fed and being OK with the growth and inflation being higher for longer. So I thought that was interesting to note.

Given some of the volatility that we've seen today and the obviously the red that we're seeing across all three of the major indices, I did want to point out one technical data point here. That the last 21 years, the market has hit its March lows today. So a little bit of repeating of history here and that pullback to be expected after you've seen such record breaking rallies and record-breaking highs day after day after day.

JULIE HYMAN: I mean, the witching thing is so interesting to me. Because options activity is-- has exploded recently. I saw a figure today citing Goldman Sachs that trading in options has surpassed that in the stock market for the first time going back to 2021, which is based on notional value, how much the shares underlying options contracts are worth. It's a-- It's sort of how you calculate that. And so we saw sort of during the pandemic when people were trading crypto, when they were trading meme stocks, they really got into options. But then it subsided. And now it's coming back again. It's really interesting.

MADISON MILLS: You can make so much more money that way. And I do wonder if part of it is tied to some of the changes that we're seeing in the labor market. I do a lot of Reddit sleuthing throughout the day to see what the Wall Street bets guys are talking about. And it does seem like a lot of the people who've been impacted by layoffs recently have also been getting in on options trading. So I-- That is completely just a personal take. We have no reporting to back that up. But I have noticed a lot more commentary on people who have recently gotten laid off learning about trading and the options space. So I wonder if that's leading to a little bit more liquidity in that area.

JULIE HYMAN: Interesting.

MADISON MILLS: Yeah.

JOSH LIPTON: Yeah. That's in the Reddit. That's where you're checking that out?

MADISON MILLS: I mean, I'm on Reddit all day. I'm trying to get some takes from these guys. I'm also honestly--

JOSH LIPTON: You got good takes? You get good takes from Reddit?

MADISON MILLS: Well, I'm trying to learn more about options--

JOSH LIPTON: I'm interested. We got-- We got the IPO next week, you know.

MADISON MILLS: I know.

JULIE HYMAN: Well, we'll have to talk about that later when we talk about the IPO. Last thing you were-- though, you were watching, which I want to mention as well what's going on in the Treasury market this week.

MADISON MILLS: Yes.

JULIE HYMAN: Because we did see a big move upward in yields.

MADISON MILLS: Right. And the 10-year has made a complete road trip back to where we started. It's looking like we're at the 2024 highs there move up by over 20 basis points over the past week. So kind of a little bit of around trip there, nearing the 2024 highs. JP Morgan today with a note talking about these Treasury yields and also mentioning that they anticipate that there's a more likely than not chance that the dot plot that we're going to get next week at that Fed meeting will suggest 25 basis points of cuts next year.

So I point that out because we continue to have these different narratives based on where you look. We've got this risk on trade. Then you've got treasuries higher than ever. And then we're also saying the Fed's only going to get cut by 25 basis points this year. Pick your data point based on what narrative you want to go with for this market. It's a lot.

JULIE HYMAN: We'll get our dots next week.

MADISON MILLS: Yeah.

JULIE HYMAN: Very exciting.

MADISON MILLS: Another holiday to look forward to, Fed Day.

[LAUGHING]

It's going to be great.

[LAUGHING]