Source: Wall Street See

On Monday, the 'options whale'— $JPMorgan (JPM.US)$ is about to engage in a massive hedging portfolio trade, potentially stirring the US stock market.

Option analysis company SpotGamma indicates that every quarter, JPMorgan's large hedge fund (JHEQX) sells approximately 0.04 million out-of-the-money call options. Currently, the hedge fund holds 0.04 million call options at 5750 points that are set to expire on September 30th (Monday).

JPMorgan's hedge stock fund (JHEQX) has a size of $16 billion, and due to its massive influence, it is also referred to as the 'whale' in the derivatives field. The fund holds a basket of $S&P 500 Index (.SPX.US)$ Stocks and index options, and reset hedge once a quarter.

Investors are focusing on the JHEQX quarterly options position updates, as well as the portfolio manager's rebalancing at the end of the quarter. Analysts say that although many market participants anticipate this type of trading, it may exacerbate stock market volatility.

SpotGamma indicates that this is one of the most well-known options trading strategies in the market, meaning that when JPMorgan's existing positions are closed out and transferred to new contracts in December. These trades will lead to an increase in volatility in the S&P 500.

Reasons as follows:

• If investors believe that JPMorgan's call options are associated with low volatility, then when these options are sold, volatility increases.

• The exercise price of the new call options will be about 5% higher than the current position, with a maturity date in December 2024. Compared to the expiring position, the new position holding call options will be significantly reduced.

• The expiration of these call options may open the door to increased volatility, and it is expected that starting from Monday, the volatility of the S&P 500 will increase.

Editor / jayden