Skittish stock traders are bracing for $2 trillion option expiration

Bank and airline stocks have just kicked off the first earnings season as the Fed is starting the interest rate hikescycle. Stock traders will face a monthly options expiration estimated at more than $2 trillion this Thursday.

Investors should watch out for the volatility underlying the market today. A similar pattern could also be found on quadruple witching day, a quarterly event that witnessed a large amount of derivative expiring.

Elevating options volume has been a regular feature of post-pandemic markets. Demand for bearish options has been growing amid choppier markets recently.

Chris Murphy, co-head of derivatives strategy at Susquehanna International Group believes Investors who bought puts in January and February when the market was selling off are way out of the money now, he said, which could mute the impact of expirations on market moves.

His team found that single-stock contracts are down 12% year-over-year. Meanwhile, index and ETF contracts increased 7% and 3%, respectively, versus year-earlier levels. "This is likely due to more of a focus on the macro environment and more hedging," he said.

Disclaimer: Past performance can't guarantee future results. Investing involves risk and the potential to lose principal. This article is for information and illustrative purposes only.