US Market Watchers Are Fretting Over the Biggest January Options Expiry in a Decade

Market watchers on Wall Street attribute this week’s stock selloff to the insidious threat of recession. Yet derivatives traders see a less ominous foe: the mass expiration of options on Friday — the biggest January event in a decade.

Sitting on the sidelines when the contracts roll over has proved a winning strategy of late. That includes this week with the S&P 500 falling for three straight sessions, the 12th time out of the past 14 months that the index has dropped around the time of OpEx.

Theories abound on why the event has proved consistently bearish. One is sheer coincidence, with the expiration happening to dovetail with the release of bad macro news. Indeed, Wednesday’s selloff worsened when data on retail sales and factory output rekindled growth concerns. Still, other experts see the options market exerting a big influence. The thinking goes that losses in stocks may reflect the unwinding of hedges by market makers, or traders using a liquidity window to sell stocks.

Either explanation could have been at work in halting a two-week rally sparked by optimism inflation will slow and the economy avoid a recession. Bulls burned by the latest downturn can take heart: Last year, stocks gained in the week after expiration on all but four occasions.