Will $6.5 trillion in expiring options impact the market?

PRE-OPEN MARKET COMMENTS FRIDAY – This is the largest triple witching ever, but I don’t believe the market will have much of a reaction. Juneteenth disrupted the week and most of the positions were “rolled” earlier in the week. Most of the position squaring took place before the FOMC Statement Wednesday. The Fed left rates unchanged. That was largely expected and the reaction was muted.

Index options account for 70% of the total options expiring, ETFs account for 12% and equity options account for 13%. We trade equity options and you can see that they are a small percentage of the total.

With regards to the FOMC Statement, Powell said that he sees slowing employment and higher inflation. That is stagflation and that is NOT good for the market.

The scheduled news next week is very light. Flash PMIs, the Richmond Manufacturing, Durable Goods Orders and the third and final look at Q2 GDP will not move the needle.

The war in the Middle East could spark some market movement, but it will be temporary.

Trade deals could get signed before the July 9th deadline, but I doubt there will be many. Bessant already indicated that as long as negotiations are progressing the deadline is likely to be extended. Today Japan’s top trade negotiator said that talks are “in a fog”, but they are talking. If deals are not progressing for other countries, the tariffs from April will be enforced.

Next week we’ll also see if Senators pass the Big Beautiful Bill. If they do, it will go back to the House for approval. Congress wants to get the bill signed by the 4th of July and that timeline is approaching quickly. In August the “rats” flee the capital and Republicans know that they need to pass this ASAP. I view the Big Beautiful Bill as the last remaining upside catalyst and I want to see what if any firepower buyers have left.

So we don’t have much news next week and we could see movement intraday, but I am not expecting much of a net change. Trump is giving Iran one more week to negotiate so there should not be any change in status.

The following week will be filled with major economic releases. It will be a holiday compressed week and the Jobs Report will be released Thursday July 3rd. I am expecting a weak number because initial jobless claims have been creeping higher. We have evidence that job growth is slowing (initial jobless claims, Challenger Gray and Christmas, ADP and the Beige Book). Powell said that he expects the unemployment rate to climb.

Trade deals, economic releases, bunker busters and the Big Beautiful Bill are likely to move the market. I am longer-term bearish and I am just waiting for my window of opportunity to open up. The farther we get into July, the more bearish I get. I believe that we will see some earnings warnings toward the end of July. As the summer unfolds, investors will get very nervous. The Fed remains hawkish and as economic activity declines they will wonder if the Fed waited too long. Half of the Fed Officials don’t believe that any rate cut will be needed this year. That is pretty incredible given the recent data points and the global easing by most central banks.

That’s how I see the summer playing out. This is all supported by the technicals in my opinion. The tariffs sparked a massive drop and when they were postponed, they resulted in a huge bounce. Without any of that news the market would have treaded water and resistance would be building because of deteriorating economic conditions. The price action the last few weeks has been wimpy and the market has not been able to challenge the all-time high. These recent tiny bodied candles show that the bounce is running out of steam.

I don’t mind carrying some overnight stock shorts and I might start taking some longer-term swing short positions that I plan to hold through October. I don’t plan to take large positions. If the stock is already weak on a longer-term basis and if they have not rallied with the market bounce, they are not likely to move higher even if the market tests the all-time high. I will have staying power because of relative weakness. When the market does roll over, the first move will happen quickly and I realize I might have to take a little heat along the way.

Global markets had a slight upward bias overnight. The largest options expiration ever is likely to result in choppy trading conditions today. The volume will be heavy no matter what so don’t assume that a strong move in one direction is relentless buying/selling that can’t be reversed. Institutions will be busy today.

Support is at $594 and resistance is at $601.