JP Morgan whale is a massive trade that one of JP Morgan’s many hedge funds has in the market; it is a ‘collar’ strategy, although we believe it is wrong to call it that way.
The collar is a strategy where there is a long position in the underlying asset, JP Morgan is long on American stocks, they sell a call option between 3.5% and 5% on a quarterly basis, with that money they create a put options spread that protects the structure from 5% down to -20%. If we were to graph the structure in an options software, we could observe its functioning.
This strategy contains volatility; in fact, in 2022 the ES 500 lost 20%, while the JP Morgan Whale lost 8%, and when the put option expires, they will renew a huge quantity of options. Moreover, on the other side, there are market makers who need to hedge.
So by observing where the money in this strategy on SPX is placed, we can gain important information about market resistances. In addition, we can study the volatility skew to understand how the big players will move.
Skills to know
JPMorgan Hedged Equity Fund is a mutual fund offered by J.P. Morgan Asset Management. It aims to provide capital appreciation while mitigating downside risk. Here’s a breakdown of its key aspects:
- The fund invests primarily in a diversified portfolio of large-cap U.S. equity securities, generally those within the S&P 500 Index
- The options overlay is typically reset every three months, with the strike prices of the options adjusted based on prevailing market conditions