After the Federal Reserve's shock, the US stock market faces another test: the largest "Triple Witching" in history is coming tonight!

After the Federal Reserve's "super hawkish rate cut," Wall Street faces a new test - the largest "triple witching" day in history!

According to the latest estimates from derivatives analysis firm Asym 500, about $6.5 trillion in options related to individual stocks, indices, and exchange-traded funds will expire on Friday. Other institutions have even higher nominal values, at $7.7 trillion, which will be the largest on record.

This large-scale expiration of options coincides with a critical moment in market pricing, as the Federal Reserve earlier announced a 25 basis point rate cut but simultaneously hinted at a slowdown in the pace of rate cuts. Although this risk is sometimes exaggerated by Wall Street, stock trading volume typically surges at the time of options expiration, a phenomenon known for sudden price fluctuations caused by the disappearance of contracts, as traders choose to roll over existing positions or establish new ones.

Brent Kochuba, founder of options platform SpotGamma, stated that the ratio of call options to put options in expiring positions is 2:1, which has helped U.S. stocks rise in four of the past six weeks.

"We suspect traders will sell some December OPEX put options on Thursday and Friday, which is why the market is slightly more stable," Kochuba said, "The unwinding of these OPEX positions may release volatility again at the end of the year."

This "triple witching" day coincides with the rebalancing of benchmark indices like the S&P 500 (which undergoes adjustments quarterly), meaning a large number of investors will trade around these positions, with daily trading volume typically ranking among the highest levels of the year. Before the market opens next Monday, Apollo Global Management and Workday will replace Qorvo and Amentum Holdings as new members of the S&P 500 index.

Additionally, it is worth noting that tonight will also see the release of the Federal Reserve's preferred inflation data - the core PCE price index, which will bring more uncertainty to U.S. stocks.

So how can one hedge against the risks of large-scale options expiration? Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, stated that the rise of short-term options allows traders to hedge risks in a more nuanced way, reducing reliance on contracts expiring on the third Friday of the month, thereby diminishing the impact of "triple witching."

Rocky Fishman, founder of Asym 500, noted that the S&P 500 index has risen 2.3% since Election Day, which "means that most of the expiration strike prices are far below current market levels, so the gamma effect may be limited."

Fishman also stated that based on the massive figure of $6.6 trillion, Friday's quarterly expiration bonds will be the highest nominal value bonds in history