As Triple Witching Looms, Nvidia Soaring Option Volume Takes Center Stage

As the calendar marches toward the third Friday of June, the financial markets gear up for a phenomenon known as triple witching, where the simultaneous expiration of stock options, stock-index futures, and stock-index options could inject a dose of volatility into what is typically a tranquil month. This quarter, the spotlight intensifies on Nvidia with its enormous expiring option.

This triple witching day is set to be a record-breaker as more investors and capital are bracing options as a part of their portfolio, with the notional value of expiring options topping $5.5 trillion. As contracts tied to both individual stocks and indexes come due, the potential for a 'gamma squeeze'—a dynamic where market makers buy stock to hedge against heavy call option buying—looms large.

Nvidia, a titan in the semiconductor space, has seen a remarkable upswing in options activity, with open interest in its call options even higher than those linked to the broader S&P 500 index—a development SpotGamma founder Brent Kochuba calls "very unusual."

As Nvidia's shares hover near this key $140 level, the market watches to see if the stock can breach this threshold. This critical price point, often seen as a psychological barrier, is now under intense scrutiny as investors ponder whether the impending triple witching will propel the shares past this resistance or if the gravitational pull of options pinning will hold it in check. Options pinning occurs when a stock's price is drawn toward a heavily populated strike price as options expiration nears, and with a significant volume of Nvidia options concentrated at the $140 level, the stage is set for a tug-of-war that could define the stock's trajectory in the near term.

"It seems like it doesn't take much to get people to buy calls on Nvidia," said Danny Kirsch, head of options at Piper Sandler, in an interview with MarketWatch. "It's a little bit like Pavlov's dog. The more you do it, the more money you seem to be making. So why would you stop?"

Historically, the aftermath of triple witching days has seen varied market movements, with March typically experiencing gains, while the weeks following the June, September, and December events are more prone to pullbacks. This pattern suggests that, while the immediate impact of the $140 call wall is a central concern for Friday's session, the subsequent week could witness a realignment of market forces.

As investors and traders position themselves for the anticipated volatility, the question remains whether Nvidia can vault over its $140 resistance or if the confluence of expiring options will serve as a ceiling, capping the stock's recent rally.