Explainer: How a massive options trade by a JP Morgan fund can move markets

Wow that fund feels like it's perfectly hedged to lose money in all market conditions.

"Strategy that involves buying put options that make money if the S&P 500 drops about 5%"

"the fund also sells puts that would make money if the S&P 500 drops more than 20%."

"the fund sells call options struck about 3.5%-5.5% above the market "

So you'll only make a little money if SPY goes up and otherwise you lose money (although not as much as SPY)
Unless it goes down 20% and they you losses are worse than SPY?

Yikes. Why on earth wouldn't you just buy bonds?
 
Every fart and sneeze by a big investment bank can move markets, but rather minimally, marginally, technically. It's not going to be a major move like a FED rate decision or a very bad company quarterly report, though.

Most news is pure hype and headlines, only. It just sounds and looks good and sexy, but there's not much truth and depth and intelligence and originality behind it.
 
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engineering said:
Wow that fund feels like it's perfectly hedged to lose money in all market conditions.

"Strategy that involves buying put options that make money if the S&P 500 drops about 5%"

"the fund also sells puts that would make money if the S&P 500 drops more than 20%."

"the fund sells call options struck about 3.5%-5.5% above the market "

So you'll only make a little money if SPY goes up and otherwise you lose money (although not as much as SPY)
Unless it goes down 20% and they you losses are worse than SPY?

Yikes. Why on earth wouldn't you just buy bonds?
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thanks man. they manage 5 trillion , but you figured out they are doing it wrong

good old et, where the finest minds hang
 
JackMorgan said:
thanks man. they manage 5 trillion , but you figured out they are doing it wrong

good old et, where the finest minds hang
More...

Hahaha! Talk about a WEAK argument.
So because JP Morgan is a big firm, all of their products are a good idea to buy?
I bet you can find someone to sell you some worthless collateralized debt obligations that were sold by JP Morgan... cheap!

https://www.theguardian.com/busines...rities-and-exchange-commission-cdo-settlement

Plus, JP Morgan has such a great reputation after all...
https://www.forbes.com/sites/kotlik...the-true-story-of-americas-most-corrupt-bank/
https://www.corp-research.org/jpmorganchase

But it's ok, you better just give them all your money and not try to understand the specific product being discussed. Clearly the key figure here is JP Morgan's total AUM, not any figures relating to the actual fund being discussed as a legally separate entity with its own financials and risk.
 
smart people at JP Morgan knew it they'd need to trade with the market master aka the FED, as the FED is on the journey to fight the inflation. They're going to squeeze the money supply. I hope the FED would be able to put the inflation Genie back to the bottle in a year or so, probably, longer in this time around because there're several essential things US no longer has control over.
 
The article says "To limit the cost of these put purchases, the fund also sells puts that would make money if the S&P 500 drops more than 20%."

WTF!! If the S&P drops more than 20%, that short put is going to get J&P Morgan assigned big time, losing much more than the premium that they sold the options for. I think what the article meant to say is "drops less than 20%"??

Options with strikes that much OTM, if it's expiring on June 30, the premium is microscopic, how that's going to limit the cost of those put purchases is beyond me. If the DTE is far away into the future, then they are exposing themselves to theta risks, the farther away the DTE, the more theta risk unless they bought more options than what they shorted. That would be the only way.

Anyway, they are professionals. I am sure they know what they are doing. I am just a retail trader. What do I know? LOL
 
engineering said:
Wow that fund feels like it's perfectly hedged to lose money in all market conditions.

"Strategy that involves buying put options that make money if the S&P 500 drops about 5%"

"the fund also sells puts that would make money if the S&P 500 drops more than 20%."

"the fund sells call options struck about 3.5%-5.5% above the market "

So you'll only make a little money if SPY goes up and otherwise you lose money (although not as much as SPY)
Unless it goes down 20% and they you losses are worse than SPY?

Yikes. Why on earth wouldn't you just buy bonds?
More...

Their strategy is just a vertical spread+short call or a short strangle+long put, some kind of unbalanced iron condor that only makes money when the market moves between 3.5% up and 20% down, i.e. shorting volatility.

"the fund also sells puts that would make money if the S&P 500 drops more than 20%.". That's a typo. This statement should read "the fund also sells puts that would make money if the S&P 500 drops less than 20%". Whoever wrote this article obviously knows nothing about options.

All in all, it's just another volatility shorting combo that has a bit of protection on the downside but leaves them wide open to losses if the market suddenly shoots up larger than 3.5% according to what's written in the article. And since the sky is the limit, not having bought any calls to limit their loss on the upside, their potential upside loss is technically infinite. I guess JP Morgan believes the market will never rise above 3.5% during the DTE of their options. Since they are the big shot, they control the market. I hope Roaring Kitty doesn't decide to take an interest in buying up the entire S&P 500 index...
 
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