JPM leaves fingerprints

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

October 1, 2024

Yo Pit Crazies,

You wonder how institutions leave clues in the markets? Take a look here.

Mark and I are in Austin on a 3 day meeting to organize Option Pit for the next 6 months and beyond. We are not holding normal classes and thought this would be a good week to get this stuff done.

If you look at the last week, how is the market taking the striff in the Middle East. Well it seems pretty good to me. Historically when action is taken, the market stabilizes somewhat as the “unsure” part becomes certain. Israel is moving much more aggressively and letting terrorist organizations know the consequences.

That same action 1 year ago tanked stocks and here we are after 1 year of effort 20% higher or more for the Standard and Poor’s 500 ETF (Ticker: SPY and SPX). The note I want to make below is that institutions leave a footprint.

You see that wild swing in SPX?

That was not an accident

JPM Trades a big collar

JPM sells 48000 calls and buys puts from market makers every quarter. As the quarter ended yesterday, that creates an odd gamma situation near the end of the day. As SPX dropped, that would get the market markers short since the calls they own lose value, so they buy /ES futures, SPX futures, to hedge.

Then by the end of the day the calls will expire in the money but will no longer have a delta since SPX settles for cash so things get squeezed upward. That is the end of day action you see above and the selloff was a short gift to the traders .

Note the open interest on the 5750 strike that expired Monday. SPX is cash settled so all the “long delta” there will go away. JPM put on a new collar for SPX Dec31 6065 calls so the whole process will rework again.

The market was stuck around 5750 for a week until these calls expired. Institutional footprint matters.

Institutions leave fingerprints in equities too. Take a look here.