Hedged Equity UpdateI wrote this script to track 3 hedged equity funds.
I've been following these funds for nearly 2 years now.
This is the first time in 2022 that I have seen the funds positions line up in positive gamma.
All of 2022 the hedged equity funds were aligned in negative gamma and sold off into expiration.
Except when dealer Gamma exposures is positive or short squeezed by other large market funds / orders.
Most notable was strength from this positioning shortly after SLR restrictions were loosened for the pandemic.
March - June 2020
Expect Shiny and Don to be supportive flows. Buying dips and selling tops.
While Tiny provides fuel for short squeezes.
Range for expiry is 4300 high and 3838 low.
Likely pin into OpEX this month is 4069 and if TSLA gets itself together 420 on spy by the end of the month.
As for the smaller hedged equity fund positions.
Tiny just reset at the end of Nov.
Short 4320 Call
Long 3855 Put
Short 3250 Put
Shiny is chilling at delta accumulation in positive (supportive) gamma.
Jhqtx
Put Spread Collar (Seagull) on JHQTXThe collar resets the last business day of Feb, May, Aug, and Nov.
This is the smallest of the 3 funds JPMorgan manages with a collar. At 3 billion in assets, the impacts on markets are still relevant.
The options for the 3rd fund are not as well known, but using the reset date and the fact they use SPX options I’m able to make a guess at the relevant sizes and strikes using current open interest.
Sell 7000 x SPX Aug 31 - 4350C - $90.50 for $633,500C
Sell 7000 x SPX Aug 31 - 3300P - $31 for $217,000C
Buy 7000 x SPX Aug 31 - 3900P - $120.88 for $846,160D
Total cost of spread ~0 net
I don’t have access to options history to find the previous quarters values except to use how the current quarters are collared, I’m able to take a guess based on date and close price to find relevant strikes.
The idea behind the fund using this strategy is not to have to pay for put premium, instead they sacrifice asset profits above 5.5% when the options reset.
The current unrealized gain is $1,967,000. Most of which will be eaten up by theta the next week while staying between the short call and long put (white zone).
When EOM rolls over I’ll have a better opportunity to see the options transition the day of.
The Dealers selling these strategies remain delta neutral so you can speculate that dealers will buy SPX delta back below the 3900P and Sell SPX the higher above 4350C.
This is only 1 strategy of PUT/CALL Hedging and there are millions of other open contracts by hedge funds to limit risk but cap potential profits.
Key takeaway
All these hedges keep the market pinned to a certain set of outcomes.
What we're seeing now with all the big swings up and down in the market are the result of lower liquidity.
As funds compete for handles on the market we're seeing more frequent up/down moves.
2 reasons why we moved from 4200 range so quickly is:
1) Window of weakness from dealer flows around OPEX
2) A bigger fund like JHEQX (see chart link below) dealer will need to sell as September approaches.
If this strategy interests you, I’ve been writing about it for almost a year.
@SPYvsGME for chart updates and I’ll post a link to an options strategy calculator with the strikes.