MW A trap door could open up under the S&P 500 when this influential options trade expires next week
By Gordon Gottsegen and Joseph Adinolfi
A large JPMorgan options trade is expected to roll off next week - here's how it could affect the market
This large options trade could explain some of the recent volatility in the market
A large institutional options fund may have contributed to some of the recent volatility in the S&P 500. That fund is expected to reset its positions on March 31, which could mean the market is in store for even more choppiness next week.
The fund is the JPMorgan Hedged Equity Fund JHEQX, and the goal behind it is pretty straightforward. It aims to protect investors when the S&P 500 SPX goes down by limiting those losses - but it does so by also limiting upside, meaning the portfolio's gains are capped.
This is made possible by deploying an options-trading strategy called a "put-spread collar." Essentially, JPMorgan picks a range that is lower than where the S&P 500 is currently trading, and buys put options at those levels as a portfolio hedge. At the same time, the fund sells call options that are trading higher than the S&P 500 to fund the trade, which caps investors' upside.
Read: A giant JPMorgan fund just reset its hedging strategy. What it did and what it means.
What's notable about this trade is the sheer scale of these options orders. Their large size means the fund can exert a lot of pressure on the S&P 500 and introduce a noticeable amount of market volatility.
"The JPM collar is one of the most followed systematic option trades," said Ben Kizemchuk, a senior investment advisor and portfolio manager for Wellington-Altus Private Wealth. "It can exert heavy influence on market stability, quarter-end flows and short-term volatility for S&P 500."
Kizemchuck said that this volatility has already been manifesting in the S&P 500. JPMorgan set one of the collar levels for this trade at 6,475 - which means market makers and dealers have to sell S&P 500 futures when the index declines and buy when it rallies, in order to protect themselves. As a result, this creates volatility around this key level.
"So 6,475 strike behaves like kryptonite for the market; it can repel price from above and below," Kizemchuck said. "The market wants to move away from 6,475 in either direction. Falling down to 6,475 from above increases the potential of sharp snap back rallies; breaking below 6,475 can trigger forced dealer selling, accelerating selloffs."
The S&P 500 broke below this level on Thursday, and selling accelerated on Friday. And with the quarterly fund reset scheduled for next Tuesday, Kizemchuck said large quarter-end flows could add more volatility in the days ahead.
Daniel Roos, the founder of options tracking and modeling platform VolSignals, said the fact that the S&P 500 is below this level right before the fund resets could lead to a market move lower that "spooks" investors.
"If we're below the put strike, for example, a lot of what's going to spook people is the selling that has to happen just to complete the hedge," Roos told MarketWatch.
Roos provided a hypothetical: "For example, if we're trading where we are now on Monday and there's only one day left, that alone would imply that there's another 20,000 futures that have to be sold continuously. It creates this really uncomfortable grind down."
However, after the collar levels reset next week, markets should react less violently to daily news. That's because volatility is at its highest when the S&P 500 is trading around the collar's put strike. The new put strike will be set mechanically lower when the new position is put on.
"A lot of the reason for the volatility is the hedging of this short gamma position, which is very near the money right now," Roos said. "So when this position disappears - regardless of the headlines - the market will be less volatile."
Roos said that the increased demand to hedge these large option flows have put a lot of strain on the market recently, and potentially more in the immediate future. But once the fund resets, it could allow some normalcy to return to the market.
-Gordon Gottsegen -Joseph Adinolfi
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(END) Dow Jones Newswires
March 28, 2026 08:00 ET (12:00 GMT)
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