The $16 billion JPMorgan Hedged Equity Fund , a long-stock product that uses derivatives to protect its portfolio from declines and volatility, holds tens of thousands of protective put contracts expiring Friday with a strike price not far below the current level of the S&P 500.
“The gravitational pull of it is getting stronger and stronger,” said Dave Lutz, head of ETFs at JonesTrading. “If we don’t retake 4,400, it’s the target for Friday.” As assets in the product ballooned, JPMorgan Asset Management in 2021 created two sister funds that follow the same strategy but with different options expirations. New cash has since been funneled into those, which now boast combined assets of about $7 billion.The fund’s derivatives position consists of a put-spread collar that involves buying puts as well as selling bullish calls and even more-bearish puts. At the end of each quarter these positions are often rolled over without incident.
Before it rolled into the options at the fund’s late-June reset, the total open interest for those particular puts was just 26 contracts with a face value of $11 million. Not far below the strike price of the JHEQX puts is another big one: the gauge’s 200-day trendline, near 4,190.
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