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

Overnight said:
2008 is on the phone asking for you. Will you take the call? Teehee
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This is not 2008!! There is no fundamental issues this time. 2008 financial crisis was caused by mortgage fraud, something irreversible that's fundamentally wrong that everything else is based on. This time, everything is fundamentally fine. It was set back by a stupid pandemic coupled with miscalculated stimulus that's way too large for its purpose especially combined with an aggressive quantitative easing monetary policy; these are the major cause of the difficulties that we are experiencing right now. But everything is reversible. The pandemic is pretty much on its way out; the economy is reopening, everybody is slowly going back to work, the stimulus has stopped, quantitative easing monetary policies are now quantitative restrictive ones, oil reserve is open a bit to ease the pressure on energy prices but shit takes time to be flushed out in the meantime we would have to suffer the consequences a bit but it's not going to result into a full-out recession like 2008, imo. We are not going to have another 2008 cuz this time it's different.
 
TheDawn said:
...We are not going to have another 2008 cuz this time it's different.
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You are right, this time it is different. We are going to have another 2008 because unlike back then, we have a whole new generation of traders, and social media, and 9 trillion on the balance sheet, and Ukraine war, and Biden going on about fossil fuels, and peak oil without peak production, etc etc etc.

We're fucked. Short it, man. I should know, I am long.
 
Overnight said:
You are right, this time it is different. We are going to have another 2008 because unlike back then, we have a whole new generation of traders, and social media, and 9 trillion on the balance sheet, and Ukraine war, and Biden going on about fossil fuels, and peak oil without peak production, etc etc etc.

We're fucked. Short it, man. I should know, I am long.
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It's ok. Your long will go into profit eventually. Hang in there. This time you won't have to wait for long. In the meantime, you can still short it with options or futures.
 
TheDawn said:
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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Ah so looks like we know when the Fed will find "inflation is fixing itself"... When JPM is about to be assigned.
 
nooby_mcnoob said:
Ah so looks like we know when the Fed will find "inflation is fixing itself"... When JPM is about to be assigned.
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assuming the inflation has reverted to be within 2% by the time the S&P has dropped 20%. The Fed has a very clear target rate that it wants inflation to be reduced to, whether that's going to take a drop of 20% or more in the S&P is really not their concern. It should be JP Morgan's concern though. I dunno how large is their short put position vs their long put position and I really hope it's smaller cuz otherwise if they really do get assigned, it's going to be HUGE considering that their positions are supposed to be market-moving. And it will be even worse if they try to close their positions because if their short puts have really reached the point that they are going to be assigned, the price to buy back their options will be 10X over with all the greeks, the vega, gamma, theta all working against them. And closing that massive size of positions is going to push the index down even further.
 
TheDawn said:
assuming the inflation has reverted to be within 2% by the time the S&P has dropped 20%. The Fed has a very clear target rate that it wants inflation to be reduced to, whether that's going to take a drop of 20% or more in the S&P is really not their concern. It should be JP Morgan's concern though. I dunno how large is their short put position vs their long put position and I really hope it's smaller cuz otherwise if they really do get assigned, it's going to be HUGE considering that their positions are supposed to be market-moving. And it will be even worse if they try to close their positions because if their short puts have really reached the point that they are going to be assigned, the price to buy back their options will be 10X over with all the greeks, the vega, gamma, theta all working against them. And closing that massive size of positions is going to push the index down even further.
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The fed will make up some reason to pump. I do not believe they will wait for inflation to get back to 2%
 
nooby_mcnoob said:
The fed will make up some reason to pump. I do not believe they will wait for inflation to get back to 2%
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We shall see how strongly the Fed is committed to reaching its inflation target. Don't forget increasing the interest rate is the only way to reduce inflation.
 
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