The Zhitong Financial APP has learned that Goldman Sachs recommends that there should not be too much interpretation of Friday's fall in the US stock market, especially when it comes to tech giants, which may have been caused by record options trading this month.
On Friday, US stocks opened high and fell low, with the Dow down more than 0.8%, steel, banks, and oil and gas sectors all falling; the S & P 500 index fell more than 0.7%, Tesla (TSLA.US) fell nearly 1%, and the Nasdaq fell 0.8%, and large technology stocks closed down except GOOG.US (GOOG).
The bank said in a report on Friday that open contracts on Friday's option expiration date could cause some instability. This is because when there is a lot of option trading activity, delta hedging (through some kind of trading to make the overall delta value of the portfolio to zero) may affect the trading of related stocks.
Goldman Sachs points out that if traders hedging delta hold net long within-price options, this could depress share prices, resulting in a large number of open contracts when stocks settle near the exercise price. On the other hand, those net short hedging activities may exacerbate share price volatility.
"Market makers hedge their unusually large portfolio of options with delta, which could dampen the volatility of some stocks and exacerbate price movements in others," said Goldman Sachs strategist led by Vishal Vivek.
Vivek and his team say that if open contracts account for a large proportion of stock trading volume, then maturity-related activities could have a greater impact. They made a list of stocks that could have a large number of outstanding contracts, including TAP.US, DXCM.US, PVH Corp. (PVH.US), 3M (MMM.US) and HSY.US.
Overall, options trading surged in July, with an average of about $534 billion a day changing hands, more than half of which were call options, according to Goldman Sachs. That is higher than last year's average of about $367 billion. Strategists say investors are increasingly concerned about the trading of short-term options. Options with an expiration date of less than two weeks account for 3/4 of all transactions.
And most options trading is concentrated in a few stocks, with AMZN.US (AMZN), Tesla (TSLA.US), AAPL.US (AAPL), NVDA.US (NVIDA) and Alphabet (GOOGL.US) accounting for more than 60% of all options traded in July. Goldman also said nearly 90 per cent of options trading this month was concentrated on 50 stocks.
At the same time, strategists at Susquehanna International Group also pointed out that the bullish volume of technology stocks has been rising. "there has been a 'significant increase' in Amazon's call options trading volume, while Apple's options trading volume hit a new high in 2021 earlier this week," Christopher Jacobson, an analyst at the company, said on Thursday.
Even if these stocks have rebounded in recent weeks, such high options trading has helped drive up implied volatility, Jacobson said. "given the role of these large-cap stocks in driving the broader index level, we think this activity is worth monitoring," he said. "