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Options Sir's Macro View | Middle East Conflict Meets 'Triple Witching Day,' How Should Investors Respond?

US stocks recorded their second consecutive daily decline on Thursday. Although major indices rebounded somewhat from intraday lows during the closing session due to a pullback in oil prices, overall market sentiment was still significantly affected by the situation in the Middle East.

As of the market close,$Dow Jones Industrial Average (.DJI.US)$The decline is 0.44%;$Nasdaq Composite Index (.IXIC.US)$The decline is 0.28%;$S&P 500 Index (.SPX.US)$ The decline was 0.27%. While the declines appeared moderate on the surface, the main trading narrative shifted three times during the session.In the opening phase, the market traded on the supply shock following attacks on energy facilities in the Middle East; in the afternoon, the focus shifted to the US possibly releasing more supply and capping oil prices through policy countermeasures; while in the closing session, the theme became position rebalancing in risk assets after extreme sentiment.

Oil price volatility was far more severe than the indices: Brent surged to $119.13 intraday but eventually retreated to $108.65; WTI hit $100.02 during the session, but closed slightly lower at $96.14.

At the same time, the S&P 500, Nasdaq, and Dow Jones have all fallen below.the 200-day moving average.This long-term bull-bear dividing line saw the S&P 500 hit a four-month low. In terms of market breadth, the number of declining stocks in the S&P components was 1.4 times that of the rising ones, while the Nasdaq had 276 new lows on the day.This means that the late-session rebound did not repair the overall weak structure of the market, with funds still in a defensive posture.

Supply contraction and a Fed unwilling to backstop the market

The late-session rebound last night cannot be simply interpreted as a 'market sentiment recovery.' This time, the market is facing energy infrastructure being directly drawn into the conflict, trading around the question of whether global energy supply will truly contract.

Israel struck Iran's South Pars gas field, while Iran attacked Qatar’s Ras Laffan LNG facility and Shell's Pearl plant. Energy facilities in Saudi Arabia and Kuwait were also hit, causing European natural gas prices to soar to a three-year high.

The core trigger for the late-session index recovery was a Reuters report stating that the U.S. government is considering tapping the Strategic Petroleum Reserve (SPR) and may lift some sanctions on Iranian crude oil.This rebound reflects a temporary easing of 'inflation panic' brought about by policy-driven suppression of oil prices, rather than renewed capital optimism about growth.

Looking deeper into the market internals, eight out of the S&P 500's 11 sectors declined, with materials and consumer discretionary leading the declines; at the individual stock level, $Micron Technology (MU.US)$ fell 3.8%, $Tesla (TSLA.US)$ fell 3.2%, $NVIDIA (NVDA.US)$ Dropped by 1%.At the same time, $Russell 2000 Index (.RUT.US)$ However, it rose against the trend by 0.6%, indicating that there is no clear consensus among investors at present. Instead, they are rapidly adjusting positions in a high-volatility environment, rather than indiscriminately withdrawing from all risk assets.，Instead, they are prioritizing the compression of assets with high valuations, sensitivity to interest rates, and significant gains beforehand.Although the index decline isn’t deep, the style rotation has become quite evident. The market has started punishing 'high-valuation imagination' rather than simply punishing 'economic cycles'.

Another reason why the market cannot form a clean V-shaped reversal is that this oil price shock coincides with a Fed that is already unwilling to provide market support.

At the FOMC meeting on March 18, there was no rate cut, and the dot plot still indicated only one rate cut by 2026. More importantly, the Fed projected the median PCE and core PCE inflation for 2026 at 2.7%, while the median year-end federal funds rate remained at 3.4%. Market expectations for rate cuts this year have quickly contracted from at least two cuts at the end of February to just about 14 basis points, with the 10-year U.S. Treasury yield once rising to 4.26%.

The rise in oil prices has pushed up inflation expectations, and the Fed is unlikely to step in to support the market in the short term. In the past, the market dared to quickly bottom-fish because investors assumed that as long as risk appetite dropped fast enough, the Fed would eventually ease policy. But now, Powell hasn’t given the market new promises of easing, and oil prices surged sharply after energy facilities were attacked. As a result, funds can only come to terms with a new reality:This time, the decline in U.S. stocks may not be immediately met with the familiar 'policy support'. Therefore, although there was a rebound in last night’s closing session, the overall market hasn't truly returned to a 'risk-on' state.

The Triple Witching Day is approaching, and volatility may increase

Tonight coincides with the March quarterly derivatives expiration date, commonly referred to as 'Triple Witching Day'.Triple Witching Day is essentially the quarterly clearing day for US stock derivatives, occurring on the third Friday of March, June, September, and December each year. On this day, three types of quarterly contracts – index futures, index options, and stock options – all expire simultaneously.

How will the market perform on this day?All contracts must decide whether to exercise, close out, or roll over before the market closes, which will lead to a significant increase in trading volume in the short term. Before options expire, market makers are often in a 'net long gamma' state given the large sell-off in index options, suppressing volatility by 'buying the dips and selling the rallies'. However, once the expiration passes, this suppression effect weakens, making the market more prone to heightened volatility. Especially during the last hour before the close, it is typically the most volatile and highest trading volume period of the day.

According to statistics from Reuters,Over the past year, the average weekly volatility of the S&P 500 in the week following the monthly options expiration was approximately 2%, higher than the 1.5% for regular weeks;Meanwhile, for popular stocks like Nvidia and Tesla, sometimes up to a quarter of open interest contracts are settled on the expiration day.

(This chart illustrates the closing prices and volume changes of the S&P 500 index from 2018 to 2020, with red dots on the volume curve representing performance on Triple Witching Days)

Further Reading:A Must-Read! 2026 Options Trading Calendar Guide: Besides Market Holidays, These Dates Will Determine Your Profits and Losses

Does this mean the market is likely to rise or fall? In fact, the Triple Witching Day itself does not determine whether the market will go up or down., although the volatility is relatively high, the direction remains uncertain. If the market is optimistic, it will fluctuate upwards; if there are concerns, it will fluctuate downwards. Therefore, the risk of Triple Witching Day does not lie in a guaranteed drop, but rather in volatility exceeding expectations, especially when compounded by other market hotspots, which could lead to even greater fluctuations.

However, today's Triple Witching Day might not be as impactful as it was over two decades ago. Back then, the market only had futures/options expiring once per quarter, with all pressure concentrated on a single day for release, occasionally causing significant volatility. But now, exchanges have long introduced options that expire monthly, weekly, and even daily, effectively dispersing what was once concentrated volatility over a single day.

This week’s expiration volume is also considerable,with options linked to US individual stocks, indices, and exchange-traded funds (ETFs) worth a notional value of approximately $5.7 trillion set to expire on Friday, marking the largest March expiration since Citi began recording data in 1996.Of this $5.7 trillion, $4.1 trillion consists of index contracts, $772 billion in ETF options, and $875 billion in individual stock options.

$5.7 trillion worth of stock options will expire this week

Against the backdrop of tonight’s environment, Triple Witching Day will amplify an already unstable market direction. The intense Middle East conflict has already caused weeks of market turbulence, and this massive expiration could inject even greater volatility into the market.

Options strategy

In terms of short-term trends, the baseline scenario remains one of high volatility and range-bound trading. Last night’s late-session rebound should be viewed as a trading-driven fluctuation rather than a trend-based opportunity.The current recovery is primarily driven by the pullback in oil prices from extreme highs, rather than fundamental factors such as improved earnings expectations or a shift in Fed policy, making its foundation less stable.

Investors holding assets with 'high valuations + long durations,' such as technology growth stocks, need to be mindful that the market has started reassessing the risks of these types of assets in a stricter manner.Conservative investors may wait for two key signals to confirm: first, whether oil prices continue to retreat from their highs, and second, whether the S&P 500 can effectively hold and remain above its 200-day moving average.

If oil prices continue to pull back, the market may experience further technical recovery, especially in oversold and highly crowded sectors which could trigger short-covering rallies. However, such rebounds are still considered a form of repair rather than the start of a new trend. Conversely, if Brent crude oil prices surge again or Middle Eastern energy facilities suffer broader attacks, the market will revert to the transmission chain of 'rising inflation—delayed rate cuts—valuation compression,' and the overnight adjustments may only be the prelude to larger fluctuations.

In terms of options strategies,$Invesco QQQ Trust (QQQ.US)$The market is at a critical juncture where short-term oversold rebounds are expected, but medium-term risks have not yet been resolved.，The moving average system shows a bearish alignment, confirming a medium-term downtrend. ，Short-term indicators have generally entered oversold territory, suggesting the possibility of technical recovery.

QQQ has broken below the 200-day moving average, a long-term key level. Historical data indicates that after such a break, there may be significant volatility within one month (maximum drawdown reaching -14.67%), but from a medium- to long-term perspective (6 months to 1 year),84.62% of such events resolve and rise within a year, with an average return of 25.29%.This provides important historical reference for long-term investors.

Options market trading data clearly reflects market caution and hedging demand.On March 19, the total trading volume of QQQ options reached 6.7362 million contracts, with put options accounting for 52.58% of the volume. The put/call ratio was 1.11. The current implied volatility (IV) stands at 27.05%, which is at a relatively high historical level (87th percentile). A large put option trade occurred on the same day, involving deep out-of-the-money puts (strike price of $630 significantly above the spot price of $593.02), with the breakeven point at $593.45 and expiration the following day. This could indicate that institutional investors holding significant amounts of the underlying asset are paying a 'premium' to purchase downside protection.

(1) If you're currently either out of the market or lightly positioned but want to participate in a potential short-term rebound,

You can use QQQ to construct a 1-2 week bullish call spread by buying an at-the-money or slightly in-the-money call while simultaneously selling a call with a higher strike price and the same expiration date. The reason for this is that the issue isn't about the market having re-entered a trending bull phase; rather, it's about 'a slight easing of oil price pressures leading to some risk unwinding.' Buying naked calls directly would subject you to premium overpricing due to high volatility, and the triple witching day's intraday swings might leave you directionally correct yet unprofitable.

Using spreads helps lower costs upfront, eliminating the most easily lost portion related to time value and volatility premium. Geopolitical tensions and oil prices remained the dominant market themes yesterday, with the Fed also not signaling any clear dovish tilt. Therefore, tonight may be more suited forLow-cost participation in a bounceRather than chasing gains emotionally.

(The design images displayed on screen are for illustrative purposes only and do not constitute any investment advice or guarantees; market conditions fluctuate frequently, and the option prices shown do not represent real-world values.)

(2) If you already hold long positions in tech-heavy QQQ,

Consider protective put options, or if you're willing to sacrifice some upside, consider constructing a collar strategy. This involves buying a put while simultaneously selling a call at a higher strike price, creating a CollarTo further reduce the cost of insurance.

Due to intraday volatility being amplified by maturing capital flows. Historically, Triple Witching days tend not to be one-sided moves but instead begin with a sweep of stop-loss orders followed by a reversal, especially in the final hour of trading. The most concerning scenario for existing bulls is when 'fundamentals remain unchanged, yet short-term profits or sentiment are damaged within a day.' In such cases, adding a layer of protection to your positions makes more sense than being forced to cut losses during the session. This is particularly true when the VIX remains elevated and the index is still below key moving averages—securing the downside becomes more crucial than leaving positions unprotected.

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Disclaimer

This content does not constitute any offer, solicitation, recommendation, opinion, or guarantee of any securities, financial products, or tools. The risk of loss in buying and selling options can be substantial. In some cases, your losses may exceed the initial margin amount deposited. Even if you set contingent orders, such as 'stop-loss' or 'limit' orders, these may not necessarily prevent losses. Market conditions may make these orders unexecutable. You might be required to deposit additional margin within a short period. If you fail to provide the required amount within the specified time, your open positions may be liquidated. However, you will still be responsible for any account deficit arising from this. Therefore, before trading, you should study and understand options and carefully consider whether such trading suits you based on your financial situation and investment objectives. If you trade options, you should be familiar with the procedures upon exercising options and at expiration, as well as your rights and obligations when exercising options and at expiration.

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