(Bloomberg) — Bulls reeling from the Federal Reserve’s still-hawkish tilt are about to lose much of the momentum this week’s macroeconomic drama helped curb volatility in U.S. stocks.

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Confusion over $4 trillion in options trading at the monthly event on Friday is expected to cause chaos in the trading day. At this point, while the S&P 500 has been stuck in the 100-point 4,000 range for weeks, higher volume offers a potential reset in market activity. Given the brutal backdrop of recent days, worries about a flagging start to the U.S. economy with significant rate hikes by global central banks are growing.

That’s how David Reidy, founder of First Growth Capital LLC, sees it playing out. In his opinion, the market is stuck in a “long gamma”, where option traders go with the current trend, buy stocks when they fall and vice versa.

Friday’s event “could break the tightness of the gamma exposure and lead to a breakout, that is, where the index goes out,” Reid. “This is on the downside given the year-over-year adjustment and macro recessionary outlook.”

A large pool of open interest in options tied to the 4,000 level on the S&P 500 ticked to maturity and served as a peg for the index’s price in the weeks leading up to Friday, Spot Gamma founder Brent Kochuba said.

Stocks were under pressure on Thursday as the European Central Bank joined the Fed in raising interest rates and warning of more pain to come. The S&P 500 sank 2.5%, closing below 3,900 for the first time in five weeks.

That sets up a critical day, when holders of options tied to indexes and individual stocks — worth $4 trillion, according to Goldman Sachs Group Inc. strategist Rocky Fishman — must roll over existing positions or start new ones.

The event coincides with the expiration of a quarterly index futures period in a process known as the Triple Witch. Added to that comes balancing of benchmark indexes, including the S&P 500. The combination tends to trigger one-day volumes that rank with the highs of the year.

“Between expiration and pricing, Friday could be the last ‘liquidity day’ of 2022,” said Chris Murphy, head of distribution strategy at Susquehanna International Group.

Options traders were bracing for a frenzy after this week’s consumer price report and the year-end Federal Open Market Committee meeting. In a sign of heightened anxiety, the derivatives market did an unusual thing on Monday with the Cboe Volatility Index, an alternative price known as the VIX, jumping more than 2 points and the S&P 500 rose 1.4%. It is the largest consolidated gain since 1997.

“Essentially all option prices tied to Friday were very high and very sensitive to implied volatility (and time decay) because they expire within a few days,” said SpotGamma’s Kochuba. “After the events, implied volatility (i.e. the price of these options) weakened, leading to hedging of flows which led to mean reversion in the markets.”

The volatility was on display Wednesday as the S&P 500’s drop coincided with a slide in the VIX, once again reversing a historical pattern of moving in opposite directions.

That hedge unwinding removed one market support and opened the door to more volatility, said Danny Kirsch, head of options at Pepper Sandler & Co.

“Now that the incident has passed, the market is free to move further,” he said. And high-for-long Fed approval is coming in, and a deep recession next year.

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