" This convergence of stock index futures, stock index options, and individual stock options has historically stirred market volatility and unusual price movements. The looming expiration coincides with a record-breaking September-options expiration, driven by elevated volumes in index and exchange-traded fund (ETF) options trading, as noted by Goldman Sachs analysts.

Following a bullish trading session that saw the S&P 500 and the Dow Jones hitting record highs on Thursday, driven by increased risk appetite after a 0.5% rate cut by the Federal Reserve, traders are bracing for the impact of the Triple Witching day. While the recent rate cut boosted market sentiment, concerns loom over whether this massive expiration event could potentially disrupt the rally sparked by the Fed's decision.

Triple Witching, occurring quarterly on the third Friday of March, June, September, and December, involves the simultaneous expiration of stock index futures, stock index options, and single-stock options. Looking back at the last three Triple Witching events, the S&P 500 has faced challenges, as evidenced by drops of 0.5% in June 2024, 1% in March 2024, and 0.6% in December 2023. The volatility of these high-stakes trading days often triggers heightened market activity as traders adjust their positions, leading to increased trading volumes and notable price fluctuations.

As market participants navigate the potential turbulence ahead, Goldman Sachs highlighted the importance of preparing for a volatility spike by recommending VIX calls to hedge portfolios. The CBOE Volatility Index, currently sitting at 17 below its multiyear average, may see an increase as we enter a historically volatile period. Goldman Sachs' economic model suggests that the VIX should be around 24.5, indicating that the current low volatility might not be long-lasting. In response, investors are advised to consider purchasing CBOE Volatility Index (VIX) November calls at a strike price of 18, as suggested by analysts at the investment bank.