S&P 500’s Slide Brings Huge Options Position Into Rare Focus

(Bloomberg) — A huge options position expiring at the end of the month is giving some on Wall Street a new level to fuss over.

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The JPMorgan Hedged Equity Fund’s (JHEQX) — which uses put options to shield against drops in the index — holds a long position in S&P 500 put options at 5,565 as part of a collar position that is rolled at the end of each quarter. The current collar — which also includes short positions in 4,700 puts and 6,165 calls — potentially adds to volatility, according to derivatives strategists, though is expected to prevent a deeper selloff. That was the case on Monday and Tuesday, when the S&P 500 briefly dipped below that level before bouncing back.

The S&P 500 only closed below the long put strike of the JPMorgan collar trade once, in early 2020 during the height of Covid, and never closed below that level at expiry, according to Brent Kochuba, founder of options platform SpotGamma.

“It’s a pinning point,” he said. “The S&P 500 could test 5,500, then bounce into the end of the month before the reciprocal tariff deadline on April 2.”

The JPMorgan Hedged Equity Fund holds a basket of S&P 500 stocks along with options on the benchmark index and resets hedges once a quarter. The fund aims to let investors benefit from equity market gains while limiting their exposure to declines. Once the options position is rolled forward three month out, their influence on current price swings should diminish.

The shape of the VIX futures curve — where the March contracts are more expensive than April and May — also points to additional volatility in the near term. As the March contract gauges one-month volatility on the S&P 500, it offers signals of the broader market’s nervousness around April 2, when the Trump administration has said it plans to unveil plans for so-called reciprocal duties on nations around the world as well as sector-specific levies.

“As we get closer to quarterly expiration, if we’re near those big strikes, the strain is so big that if the index is within a percent of the big concentrated strikes, it does exert magnetic pull on equities later this month,” said Benn Eifert, founder and managing parter at the boutique volatility hedge fund QVR Advisors. “Depending on where the underlying closes are relative to these strikes, this trade could involve buying or selling say as much as $10 billion” notional value of equities, he said.