A nearly $16 billion JP Morgan fund is expected to reset its options positions on Friday, potentially adding to equity volatility at the end of a gloomy quarter for stocks.
Analysts have in the past pointed to the JPMorgan Hedged Equity Fund’s quarterly reset roiling markets, and see it as a source of potential volatility during Friday's session.
stocks along with options on the benchmark index and resets hedges once a quarter. The fund, which had about $15.59 billion in assets as of September 28, aims to let investors benefit from equity market gains while limiting their exposure to declines. For the year, the fund was down 10.66% through September 28, compared with a 21% decline for the S&P 500 Total return IndexThe fund's assets ballooned in recent years, as investors sought protection from the sort of wild swings that rocked markets in the wake of the COVID-19 outbreak in March 2020., Microsoft Corp and Amazon.com Inc .
To minimize their own risk, they typically buy or sell stock futures, depending on the direction of the market's move. Such trading related to dealer hedging has the potential to influence the broader market, especially if done in size, as is the case for the JPM trade. The trade is "well understood" and "mostly digested by the market," said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group.
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