On Monday, did the "options whale" stir up the US stock market?

On Monday, "options whale" - JPMorgan Chase is about to conduct a massive hedging combination trade, which may stir the US stock market.

Option analysis company SpotGamma stated that every quarter, JPMorgan Chase's large hedge fund (JHEQX) sells approximately 40,000 out-of-the-money call options. Currently, the 40,000 call options at 5750 points held by this hedge fund are set to expire on September 30th (Monday).

JPMorgan Chase's hedge stock fund (JHEQX) has a size of $16 billion, and due to its enormous influence, it is also known as the "whale" in the derivatives field. The fund holds a basket of S&P 500 index stocks and benchmark index options, resetting the hedge quarterly.

Investors are paying attention to the quarterly option position updates of JHEQX, as well as the rebalancing conducted by portfolio managers at the end of the quarter. Analysts say that although many market participants anticipate this type of trade, it could exacerbate stock market volatility.

SpotGamma stated that this is one of the most well-known options trades in the market, meaning that when JPMorgan Chase'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.

The reasons are as follows:

• If investors believe that JPMorgan Chase's call options are related to low volatility, then when these options are sold, volatility increases.
• The strike price of the new call options will be about 5% higher than the current positions, with an expiration date in December 2024. Compared to the expiring positions, the new positions' 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