SPX/ES - An Analysis Of The 'JPM Collar'

2 juil. 2023

Over the last two quarters, financial social media has cared a lot about the "JPM Collar," a series of very large options trades that JP Morgan uses in one of the funds it offers its clients.

The theory for speculators is that the JPM collar will be used to constrict the market within a certain range. But as for how that plays out, it's hard for a trader to anticipate, especially amid the daily chop.

The levels are on the chart and you can reference them yourself. Below is a print of monthly bars, which is easier to see since I have to compress the TradingView chart to make the bars work:



If you're not familiar options, the general idea is this:

1. These options blocks expire September 29
   
2. JPM will lose a lot of money if price is over 4,665 or starts to approach 4,665, especially if it happens right away
   
3. JPM will lose a lot of money if price goes under 3,550, especially if it happens right away
   
4. JPM will lose a lot of money if price goes under 4,215, especially if it happens right away
   

But a nuance of being long 4,215 calls is that if price is significantly over 4,215 by September, they will make a lot of money on their calls.

Geopolitical Risks

Before we begin, I'll warn you, as I do in every post, that the geopolitical situation is tense. NATO is at war with the Russian Federation inside of Ukraine and the International Rules Based Order is always talking about "de-risking, but not decoupling" from Mainland China under President Xi Jinping.

The risk for markets is, short of a situation where a tectonic/geothermal event surprises everyone and causes the crash of crashes, is that Xi gets up one night and throws away the Chinese Communist Party.

Since Beijing business hours are New York night, you'll wake up to quite the gap down that will be hard to recover from, for the Chinese Communist Party and former Chairman Jiang Zemin and its cronies are guilty of the 24-year-long persecution and genocide against Falun Dafa's 100 million practitioners.

The Call

The most most notable thing about price action is as June closed, range equilibrium between the June high and the October low is exactly 4,000.00 points.

Something else I stumbled upon when preparing for this post is that when comparing the Dow, Nasdaq, and SPX futures monthly bars, the three have completely converged.



This is the first time since the **2022 top** that this has happened.
You can see it on the weekly as well



There used to be quite the delta, which allowed for stock picking and trading. If you ask me, what three memelines coming together all at once means is that the markets reached peak overbought, and genuine "overbought" isn't something you can see with an indicator.

The daily shows this really only manifested in June.



There are some problems with more uppy, as I explain in my calls below on the VIX, which needs to go up so that whales can go back to collecting free money selling volatility:

VIX - The 72-Handle Prelude

(But note that under the current conditions being summer and we're not that bearish right now, we may only see VIX 50)

And the fact that the Nasdaq is just so far away from its trendline that going more parabolic is hard to believe.

Nasdaq NQ - A Fundamental and Technical Warning Signal

I don't normally call exact areas, but I put a white box with a dolphin because I think price is going there, and will do so fast, like, mid-August fast.

That box means 3,778~.

This means JPM will be green on out of the money calls, red on its own calls, and red on the 3,550 puts.

But JPM doesn't lose money to begin with because they're hedged and will be compensating for the drawdown in other ways, like the alpha they'll generate from going big block long in the dumps under 4,000.

The other advantage is it will trap bears who think it's finally the apocalypse they've long been awaiting for the ponzi to go to zero, and they'll buy puts and buy puts even though the iVol is insane from VIX being over 50.

Once the craziness is done, the markets will recover, and whoever sold will probably by trapped.

So, be careful out there. Wall Street's best laid plans can be blown to pieces in an hour by Heaven, for men are no better than mice in this boundless Cosmos.

2 juil. 2023

Note

A notable concern in the markets at large, is that of the three indexes, only the Dow swept its pre-COVID high.



The implications of this are really significant.

But current price action does not support any kind of narrative where the markets go under 3,500.

What this means is the situation is very dangerous, but you will forget about this point long before September, let alone December.

7 juil. 2023

Note

Shoutouts to ChartMeNot who pointed out that 4200 level is actually puts and not calls, which I somehow missed even after spending almost 2 hours making the post and checking it thrice.

What I think it changes is the timing. I believe that idea would be to ensure that price is meaningfully under 4,200 by September 29, but away enough from 3550 that puts expire worthless.

In the short term, if I were the MM, I would want to keep price about where it is now to premium burn the 3550 puts. I expect if there's a move down that the time horizon is around the July 21 monthly expiry.

July FOMC is the 25th and 26th as well.

In the super short term, after SPX took a high and has begun to retrace, I think it's pretty obvious the level it's targeting is this 4,300 gap:



After that, if there's upside to be had again, it would be a purge over the 4,500 mark.

12 juil. 2023

Note

An interesting comparison of the SPX vs the Nikkei, which is dumping aggressively during the Asian session.



I call this piece "Tom Lee Calls For SPX 5,000"

13 juil. 2023

Note

Notable is SPX is now in the weekly wicks of the March of 22 high, also when the hopium for a new all time high was the hottest: