In a note seen by Reuters on Friday, Goldman Sachs specialist Scott Rubner warned of a potential correction in Wall Street stocks due to disruptions in the options market. The note highlighted that roughly $2.7 trillion of U.S. stock market derivatives are set to expire, which could heighten market pressure and increase volatility.
Despite the S&P 500 and European stock markets reaching record highs earlier in the week, concerns arise following Trump's recent tariff threats on pharmaceuticals, semiconductor chips, and wood, intensifying worries about a widespread trade conflict and unsettling investors.
Moreover, besides tax obligations affecting retail traders' activity, average flows from retirement funds into mutual and exchange-traded funds typically diminish in March, potentially contributing to a slowdown in stock purchases.
Pointing out that about $2.7 trillion of equity options are expiring, including bets on the S&P 500 and individual stocks, the Goldman note underlined that banks and trades supporting these investments hold over $9 billion in hedges to mitigate volatility.
Dan Izzo, founder of the hedge fund BLKBRD Asset Management, explained that if investors do not renew their options bets, intermediaries may need to unravel their hedges, posing a significant momentary strain. In the worst-case scenario, a lack of buyers could lead to a substantial sell-off, according to Izzo.