Weekly post (24-28/march)
Bias into EOM, JPM collar
The essence of Friday's supportive OpEx laid, on one hand, in the fact that after the AM expo, dealers had to buy back a significant amount of delta, as I had signaled before the opening.
On the other hand, the local positioning was long vanna, short charm, and long color, which reduced the negative gamma effect as the day progressed. In addition, the overall positioning was neutral-to-suppressive, with almost zero negative speed exposure, which, along with declining vol, compressed the delta exposure during the day and thus prevented any rally whatsoever.
But most importantly, it was the algorithms operating in HF mean reversion trading and long dispersion mode, which I have been continuously signaling for dynamism over the past weeks, whose natural consequence was the suppression of the range of daily returns—and consequently, of volatility. This was supportive in the local long vanna environment.
And why does oscillation occur, why is there a need for low volatility? Read this and this post, or this one.
Now that we're past OpEx, we need to determine what the market wants until the end-of-month expiry. And this is where the JPM collar will come into effect. So now I write a bit about it again in advance.
JPM Put Spread Collar
JPM hedge equity operation actually consists of three funds, with JHEQX being the largest. These funds operate continuously and have overlapping expirations.
Unlike a traditional protective collar trade, this fund uses a debit spread. The extra premium gained from selling the put option lets the manager raise the call strike and increase the cap. This spread protects against losses beyond roughly 5%, but after about 20% losses, the protection ends and performance tracks the market one‑to‑one. It does not offer coverage against extreme tail events. Also they use SPXW options (EOM, PM‑settled), so execution and resetting are tied to the closing settlement.
Once the collar is established around 2 PM (the official settlement), the fund managers do not actively adjust or roll the position. This is a common misconception. Instead, the collar simply expires, and they reset it with a new one. There’s no active monetization of the collar during its lifetime. Since the new collar adds further short delta exposure, they also open a 0DTE call leg to neutralize that delta.
See the official brochure here.
Here you can see the 4700/5565/6165 collar on EOM expo:
