Record-breaking $5.7 trillion market pressure on US stocks on "quadruple witching day"! As tensions escalate in the Middle East, a storm of volatility is imminent.

Wall Street stock traders are gearing up for an unusually large options expiration on Friday, which could inject more volatility into a stock market that has been experiencing weeks of turmoil due to escalating Middle East geopolitical conflicts. A recent research report from Goldman Sachs shows that cross-asset correlations and volatility are undergoing rapid structural changes, and the U.S. stock market is at a critical point of "meltdown" and "squeeze", indicating that since the end of February when the U.S./Israel airstrikes on Iran triggered a new round of Middle East geopolitical superstorms, global stock market volatility may intensify, and even the U.S. stock market may see record-breaking volatility on Friday, the "quadruple witching day". According to data from Citigroup dating back to 1996, there will be approximately $5.7 trillion in notional value of options expiring on Friday, linked to U.S. stocks, indices, and exchange-traded funds, making it the largest March expiration in history. This quarterly event has long been referred to by traders as "quadruple witching day", but now "triple witching day" is more appropriate. The notional options expiration figure includes $4.1 trillion in index contracts, $772 billion in exchange-traded fund contracts, and $875 billion in single stock options. "Quadruple witching day" occurs on the third Friday of March, June, September, and December, known for causing a surge in trading volume and sudden and volatile price fluctuations in assets, usually accompanied by large-scale rolling over of positions and unwinding of old positions. Trading volume on these days tends to increase, with the last hour of trading on such days typically seeing the highest volume as traders may make significant adjustments to their portfolios. However, since the cessation of single stock futures trading in the U.S. market in 2020, the classic term "quadruple witching day" is purely symbolic, and "triple witching day" (simultaneous expiration of stock index futures contracts, index options, and individual stock options) is more in line with actual trading conditions. The event of "quadruple witching day" typically forces traders to massively unwind, roll over, or rebalance positions, long believed to trigger sudden and violent price fluctuations in assets, as large-scale derivative exposures suddenly disappear. As tensions escalate in the Middle East geopolitical conflict, Wall Street is on edge ahead of the "quadruple witching day" Due to the limited progress on the diplomatic front, the uncertainty surrounding the trajectory of the conflict continues to weigh heavily on global financial markets. Before the stock market returns to a relatively calm period, it may have to endure weeks of intense volatility and turmoil. Some options market traders are betting that the most arduous bouts of volatility in the stock market will last for another week or even around a month, following the official meeting of the leaders of the world's two largest economies, and only then return to a relatively normal trading pattern. The record expiration this quarter comes at a particularly tense time in the market, with the S&P 500 index even breaking below key support levels. With a new round of Middle East war between the U.S./Israel and Iran pushing oil prices sharply higher and sparking concerns of global inflation and even "stagflation", investors' bets on a Fed rate cut are significantly diminishing. On Thursday, hostilities continue to escalate, with the frequency and scale of attacks on energy facilities in the Persian Gulf increasing. While the S&P 500 index is only down about 6% from its record high set in January, the key indicator of expected stock market volatilitythe Chicago Board Options Exchange Volatility Index (VIX), also known as the fear index, remains significantly higher than its average level over the past six months, highlighting the continued tension, anxiety, and panic selling sentiment among investors. Trading activity in the options market has surged in recent weeks, especially in index and ETF-related contracts. Statistics compiled by Vishal Vivek, head of equity and derivative trading strategies at Citigroup, show that both categories of contracts saw record nominal trading volumes in March, about 9% higher than the average level since the beginning of the year. In contrast, trading volume in individual stock options is about 3% lower than this level, partly due to a decreasing participation of retail investors and a sharp increase in concerns among retail investors about geopolitical risks. The scale of expirations this week stands out particularly in the broader U.S. stock market outside of the S&P 500 index. Calculated by the Russell 3000 index market capitalization, these expirations account for 8.4% of the total market value, significantly higher than historical norms, amplifying the potential impact of fund flows being driven by positions. According to Goldman Sachs Prime Book data, the current stock market positions have become very fragile, with downward moves being magnified and upside moves being met with short covering. The high level of short positions and the short gamma structure will not disappear in the short term, further compounded by the historical largest $5.7 trillion options expiration event on Friday, creating a significant vulnerability to both downside moves triggered by bad news and upside moves triggered by short covering, with the possibility of further magnification due to the massive options expiration. Mechanical selling pressure driven by CTAs and trend-following strategies has not yet dissipated, with nearly a billion dollars' worth of potential stock selling expected in the next week to a month, especially in U.S. stocks whose trend signals are weakening the most; simultaneously, global financial conditions are significantly tightening in the short term, with oil prices rising, weakening employment data, credit market pressures, and falling stock prices forming a negative resonance, shifting the market from "overvalued but sustainable" to "more fragile and vulnerable to shocks". Currently, hedge funds and institutional investors maintain some extreme long positions in certain stocks while significantly adding to short positions through ETFs and stock index futures, pushing the short positions open in the U.S. stock market to their highest levels since September 2022; this abnormal position structure implies that as long as the geopolitical situation continues to worsen, the market is more likely to tilt downwards, but if a significant positive catalyst suddenly emerges, it could easily trigger an "extreme rebound." The war in Iran and the surge in oil prices are triggering institutional funds to evacuate U.S. stock risk assets in a way that is almost at "historic extremes", pushing the market to a highly fragile critical juncture. According to Goldman Sachs data, in the week of March 3 to 10, global asset management institutions sold a net $36.2 billion in S&P 500 futures contracts, marking the largest single-week reduction in over a decade; simultaneously, short positions in U.S.-listed ETFs also saw historically high increases, pushing the overall short exposure of macro products to near three-year highs. These actions actively indicate that the current situation is not just a routine defensive reshuffle, but a systemic derisking operation in synchrony with futures liquidation and ETF short positions, reflecting institutions' high vigilance against geopolitical shocks, further oil price inflation, and market fragility. The market is currently at a critical juncture where the risks of "meltdown" and "squeeze" coexist: on the one hand, if the situation in Iran shows no signs of easing in the next two weeks, extreme positions and deteriorating sentiment could drive the stock market further down; on the other hand, as institutional long positions have not been entirely unwound and massive short positions have accumulated, any slight easing signal could swiftly spark a strong short covering rally. In other words, the most dangerous aspect of the current U.S. stock market is not that the direction is already determined, but that the direction is still uncertain while the position structure has become extreme; what truly determines the future trend is whether the Middle East situation can undergo a substantial turnaround in a short period of time.