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Wall Street Braces for Increased Stock Market Volatility
Options Expiration
Two significant events are expected to create volatility in the stock market on Friday. The first event is the expiration of thousands of options contracts on stocks, indexes, futures, and ETFs. While trading volumes have been low in July, options exposure remains high compared to previous summers, according to Goldman Sachs. It is estimated that over $2.3 trillion of notional options exposure will expire, including $500 billion of single stock options. As investors execute these contracts to collect their profits or roll them over, trading volumes are likely to soar.
Nasdaq-100 Rebalance
The second major change is a special rebalance of the Nasdaq-100 Index, which will take effect at the start of trading on Monday. Concerns have been raised about the concentration of the stock market in a few large tech companies like Microsoft and Nvidia. As a result, the Nasdaq-100 rebalance aims to dilute the impact of these major stocks in the index. While specific changes have not been publicly released, Goldman Sachs notes that Nvidia and Microsoft will see the biggest downward adjustments to their weightings, while Broadcom will receive the largest boost. Index funds and other investment products benchmarked to the Nasdaq-100 will likely need to adjust their holdings accordingly.
Impact on the Market
These structural shifts are expected to create volatility in the stock market as investors react to the expiration of options contracts and the rebalance of the Nasdaq-100 Index. The increased trading volumes resulting from options expiration may lead to more significant price swings in various securities. Additionally, the adjustments made to the Nasdaq-100 Index could have a notable impact on the stocks involved, as well as on index funds and investment products tied to the index. Traders and investors will closely monitor these events for potential trading opportunities and to manage risk accordingly.
Conclusion
Friday's options expiration and the upcoming Nasdaq-100 rebalance are causing anticipation for increased stock market volatility. Both events have the potential to significantly impact trading volumes and price movements in the market. As investors prepare for these shifts, it will be crucial to closely monitor market activity and adjust strategies accordingly. Traders and investors should remain vigilant and proactive to take advantage of potential opportunities while managing any associated risks.
Hot Take: How Stock Market Volatility May Impact New Businesses
The anticipated increase in stock market volatility due to the options expiration and Nasdaq-100 rebalance events has important implications for new businesses. As trading volumes soar and price swings become more significant, new businesses may experience both challenges and opportunities in this volatile market environment.
Challenges:
1. Financing: New businesses heavily reliant on equity financing may find it more challenging to attract investors during volatile market conditions. Investors may become more cautious and risk-averse, making it difficult for new businesses to secure necessary funding for their operations and growth plans.
2. Market Uncertainty: Volatile markets can create uncertainty among consumers and businesses alike. This uncertainty may lead to reduced consumer spending and delayed investment decisions, impacting new businesses' ability to generate revenues and establish a solid customer base.
3. Capital Allocation: With market volatility, investors may shift their capital allocation strategies, favoring safer investments or larger, more established companies. This could make it harder for new businesses to stand out and attract investment, as competition for limited capital intensifies.
Opportunities:
1. Market Niche: Volatile market conditions can create gaps and opportunities within specific industries or sectors. New businesses with innovative products or solutions targeting these niches may find greater receptiveness from potential customers and investors.
2. Acquisition Opportunities: Market turbulence often prompts consolidation and acquisition activity. New businesses with solid financial footing may be able to identify strategic acquisition targets or attract interest from larger companies seeking to expand or diversify their operations.
3. Flexible Business Models: Startups and new businesses are typically more agile and adaptable. This flexibility can be an advantage during times of market volatility, allowing new businesses to pivot quickly, identify emerging trends, and adjust their strategies to maximize opportunities.
In conclusion, while increased stock market volatility presents challenges for new businesses in terms of financing, market uncertainty, and competition for capital, it also offers potential opportunities for those able to identify and capitalize on niche markets, acquisition prospects, and adaptability. Entrepreneurs and startups should closely monitor market conditions, remain resilient, and leverage their inherent strengths to navigate the uncertainties and emerge stronger in this dynamic business environment.
Article First Published at: https://www.cnbc.com/2023/07/21/stock-volume-friday-seen-high-due-to-index-revamp-options-expiration.html.svg)
