Put Spread Collar (Seagull) on JHQTX
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.
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.
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