(Bloomberg). — Market turmoil this week is not just due to the collapse of stay-at home stocks or gyrations with bonds, but also because there are more than $3 trillion worth expiring stock options. 

OpEx, also known as the phenomenon of OpEx has been going on for approximately a year. American equity prices fall in the middle of the month, typically around the third Friday, when most stock derivatives expire. 

It is believed that dealers in the options marketplace are balancing their exposures with buying and selling of underlying stocks or index forwards to create this dynamic. And this month’s OpEx is a big one.

All in all, Goldman Sachs Group Inc (NYSE:). Estimates of $3.3 trillion worth U.S. equity derivatives will expire Friday. The firm stated that this includes approximately $1.3 trillion in single stock derivatives. About $1 trillion of S&P 500-linked contracts will run out, and $240 billion in options tied to the world’s largest ETF, the SPDR S&P 500 ETF Trust (ticker ASX:).

Stocks aren’t driven solely by options, so there is a lot of uncertainty surrounding their impact. They may also have contributed to volatility, as Netflix Inc (NASDAQ) demonstrates. Peloton Interactive, (NASDAQ:) Inc. fell on bleak outlooks as the rate-driven rout tightened its grip over pricey growth stocks.

“Today’s expiry could be important for stocks with large open interest in at-the-money (ATM) options,” Goldman strategists including Vishal Vivek wrote in a note. “Market makers’ delta-hedging large options portfolios will be active. This flow is likely to dampen volatility in some names while exacerbating stock price moves in others.”

This OpEx dynamic is far from new, but it’s thought to be growing alongside the boom in options trading. An increase in dealer activity is due to increased participation by retail investors in the market, and growing hedging from institutional pros.

This has led to speculation that the relation between options and stocks has changed. Instead of the stock market driving derivatives, this dynamic is now so significant.

Learn more: Opportunities Turn upheavals Into Mid-Month Sure Things

Kochuba is the founder of SpotGamma’s analytic services. He observed last week that there were many in-the money single stock call positions. This had resulted in a large positive Delta skew, which represents the value of stock needed for market makers to hedge their directional exposure from all options. Recent market volatility has been caused by the closing of most of these call positions. Now, Friday’s expiration has a relatively flat delta position. 

This means that dealer exposure should be close to zero, and expiry effects should decrease.

“Call have been closed, puts have been purchased and stock prices have dropped precipitously,” Kochuba said. “As a result of this shift, we think that some of the selling in single stocks may now subside as we head into Wednesday’s FOMC.” 

It works like this: A market maker takes up the opposite side of a trade when an investor sells or buys an option. They trade the underlying to reduce their exposure. 

In the run-up to expiration, depending on where dealers’ overall positions are, they can act as a stabilizing force or a volatility accelerator.

However, it’s a complicated picture, and the exact dynamics depend on the options expiring, new ones created and moves in the underlying assets.

Stocks in the United States have seen a turbulent start to 2022. 

The Cboe Volatility Index, a measure of expected price swings in the S&P 500 known as the , has jumped about 10 points to 27 points since the start of the month. The prospect of tighter monetary policy is causing investors to abandon expensive stocks and stock that are unlikely to make a profit in the near future.

As of Friday morning in New York, the three major equity gauges fell again. 

“Is options expiration a contributor to the selloff? Yes. It is the primary driver. No,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. “The Fed and deleveraging is the reason for the selloff.”

Read more: How ‘OpEx’ Is Shaking Up the Third Week of the Month: QuickTake

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