The collar resets the last business day of Feb, May, Aug, and Nov.
This is the smallest of the 3 funds JPMorgan manages with a collar. At 3 billion in assets, the impacts on markets are still relevant.
The options for the 3rd fund are not as well known, but using the reset date and the fact they use SPX options I’m able to make a guess at the relevant sizes and strikes using current open interest.
Sell 7000 x SPX Aug 31 - 4350C - $90.50 for $633,500C Sell 7000 x SPX Aug 31 - 3300P - $31 for $217,000C Buy 7000 x SPX Aug 31 - 3900P - $120.88 for $846,160D Total cost of spread ~0 net
I don’t have access to options history to find the previous quarters values except to use how the current quarters are collared, I’m able to take a guess based on date and close price to find relevant strikes.
The idea behind the fund using this strategy is not to have to pay for put premium, instead they sacrifice asset profits above 5.5% when the options reset.
The current unrealized gain is $1,967,000. Most of which will be eaten up by theta the next week while staying between the short call and long put (white zone).
When EOM rolls over I’ll have a better opportunity to see the options transition the day of.
The Dealers selling these strategies remain delta neutral so you can speculate that dealers will buy SPX delta back below the 3900P and Sell SPX the higher above 4350C.
This is only 1 strategy of PUT/CALL Hedging and there are millions of other open contracts by hedge funds to limit risk but cap potential profits.
Key takeaway
All these hedges keep the market pinned to a certain set of outcomes.
What we're seeing now with all the big swings up and down in the market are the result of lower liquidity.
As funds compete for handles on the market we're seeing more frequent up/down moves.
2 reasons why we moved from 4200 range so quickly is:
1) Window of weakness from dealer flows around OPEX 2) A bigger fund like JHEQX (see chart link below) dealer will need to sell as September approaches.
If this strategy interests you, I’ve been writing about it for almost a year.
@SPYvsGME for chart updates and I’ll post a link to an options strategy calculator with the strikes.
Thanks for the data, great posts. "If this strategy interests you, I’ve been writing about it for almost a year." "At 3 billion in assets, the impacts on markets are still relevant." Have you calculated the efficiency of the one year data, i.e. what is the probability (approximate percentage) that 3900 could be the inflection point (some kind of rebound) of the S&P 500? This is possible to calculate?
SPYvsGME
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@BrainRules, Sorry I missed this comment Brain, we are going to find out today it seems.
SPYvsGME
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@BrainRules, Just hanging on to 3900. The point the big fund goes negative gamma is ~3700
BrainRules
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@SPYvsGME, Yes, thanks, it seems a (strong?) support:
SPYvsGME
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@BrainRules, interesting chart. would be worth some call premium to hedge downside. So much bearish sentiment. Chip sector is rolling over. If Apple drops 155. yikes.
BrainRules
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@SPYvsGME, Yes, it's the big one, here's 'my' AAPLE support:
SPYvsGME
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@BrainRules, nice work. I put some longs on and caught that afternoon rally.
BrainRules
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@SPYvsGME, Congrats, let's see if this will continue tomorrow, I'am longing the S&P 500 since the bottom (it's the same chart APPLE and S&P🤣; what an 'amazing' IA world we live in right now...):