S&P 500 Slid Toward Key 3,900 Level But Held Its Ground Thanks to Options

Traders watching price action in stocks might have noticed that the S&P 500 has slid toward the 3,900 level three different times Thursday, before holding its ground. The resilience can be attributed to Friday’s $3.2 trillion option expiration, one theory holds.

As of midday, roughly 13,000 puts expiring Friday linked to the equity index with a 3,900 strike price have changed hands, with the cost, or implied volatility, falling almost 2 points over a span of two hours, according to Cantor Fitzgerald LP.

The drop in prices suggested that those contracts were either sold for a profit or rolled out to long term options, says Matthew Tym, the firm’s head of equity derivatives trading. Such moves prompted options dealers who were on the other side of the transaction to buy shares to maintain a neutral market exposure, likely acting as a buffer.