Good morning, traders…
There’s a $21 billion elephant in the room with us right now — and most traders have no idea it exists.
But if you’ve been watching the move higher off the March 13 lows, you’ve seen its fingerprints already.
I’m not talking about some mystery hedge fund or shady offshore algo. I’m talking about a JPMorgan mutual fund designed for ultra-cautious stock investors.
The JPMorgan Hedged Equity Fund (JHEQX) has a massive options position that it rolls every quarter.
This fund sells tens of thousands of S&P 500 option contracts per month, forcing the dealers who take the other side of the trade to hedge aggressively by buying the index.
When the positions get gargantuan, that hedging can create knock-on effects across the entire market.
And right now, those ripples are turning into a potential tsunami…
According to Kevin Muir, a former institutional trader and macro forecaster, the structure of this trade could act like a jet engine for the stock market over the next week as market makers buy indexes to hedge their risk.
If this is confusing, don’t worry. I’m going to explain all of this in plain English.
With that in mind, let’s break down how this catalyst explains what’s going on in the market right now…
The Secrets Behind “The JPM Option Whale”
This JPMorgan fund is essentially a “sleep well at night” vehicle for nervous equity investors. It holds stocks but layers on hedges with options to reduce downside. Sounds boring, right?
Well, it was. Until it grew from half a billion dollars to over $21 billion.
And when you’re dealing with that kind of size, the hedges get … complicated.
Each quarter, the fund sells tens of thousands of call options on the S&P 500. Last quarter alone it sold 40,000 contracts. The notional value was around $24 billion.
That’s big enough to earn the fund the nickname “The JPM Option Whale.”
Now here’s where it gets interesting. When the fund sells those calls, someone has to take the other side — usually option market makers.
But these guys don’t just hold the position and pray. They manage their risk dynamically through something called delta hedging.
If the market moves, they adjust. Buy futures here. Sell them there. They need to stay delta-neutral — and every tick in the S&P forces them to recalibrate.
And when the size is this big, that recalibration can move the entire index.
Muir describes it like this: sometimes, the tail wags the dog. Meaning the hedging activity around this single trade can influence the broader market — not the other way around.
What This Means for Traders
Back in December, the market was grinding higher, and the option sellers (“market makers” or “dealers”) were long gamma — a position where they actually had to sell futures as the market rose and buy as it dipped.
The result was a slow, tight market with suppressed volatility. In fact, for nearly two weeks, the S&P barely moved more than 1%.
But when the positioning flips — when they’re short gamma — that’s when things get wild. Option sellers have to sell into weakness and buy into strength, which exaggerates every move.
And that’s what we saw in February…
Major volatility. Multi-month lows. Forced buying and selling. It wasn’t some mystery headline — it was dealers frantically managing their exposure to the Whale.
On March 13th, the SPY dropped over 3%, and dealers were forced to sell billions in futures. The very next day, the market ripped higher — dealers had to buy it all back.
Imagine explaining that to your boss: “Yeah, we dumped a billion in futures at the close … and then bought it all back 24 hours later.”
That’s the mess this trade creates. But it also sets up an opportunity for traders like you and me…
Why You Need to Pay Attention
Here’s what’s you need to know about this:
This quarter’s key strike price for the Whale trade is around $556 on the SPY.
As long as we’re trading above that — and we are — options sellers will be forced to reduce their hedges into expiry.
That means they have to buy into strength right now, and explains why the market has drifted higher off its March 13 lows.
But like I said on Tuesday, the volatility is going to roar back. I can feel it. We might have seen the beginning of this yesterday, as the S&P was down over 1%. And once the tariffs hit on April 2, all bets are off.
I’m not suddenly getting bullish just because some guy wrote an article, and neither should you. I’m very market agnostic right now, ready to play both puts and calls at any moment.
Happy trading,
Jeff Zananiri
P.S. It’s only March and my GAMMA Code system has already given us multiple 100%+ setups this year…*
But if you want to start getting in on these trades before they take off, there’s only one place to start…
TODAY, March 27 at 8:00 p.m. EST, the great Danny Phee is hosting a LIVE WORKSHOP to reveal the top GAMMA setups for next week.
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*Past performance does not indicate future results
