As the first half of the year winds up this week, investors are eyeing the large hedged equity fund’s quarterly updates of its options positions, and portfolio managers’ quarter’s end rebalancing may influence U.S. stock moves.
On Friday, it is anticipated that the S&P 500 stocks and options on the benchmark index, which held almost $16 billion in JP Morgan Hedged equity funds, will roll out their options positions.
According to the analysts, despite the fact that it is anticipated by market participants, it can amplify the daily stock market moves, especially during periods of poor market liquidity.
For the time being, the trade might reduce stock volatility. This is because the March 31 refresh of the fund’s positions includes the sale of nearly 40,000 S&P 500 options contracts with a strike price of 4,320, which is well below what the index is trading today, as well as around 120,000 S&P 500 options contracts that are slated to expire on June 30.
The founder of the options analytics firm SpotGamma, Brent Kochuba, said that the options dealers (large banks and financial institutions) have to buy the shares when the index drops below the level of the S&P 500, which is just above 4,320, and later they have to sell the equities if it moves about it. According to the analysts, it may help curb market volatility.
To reflect the changes in stocks and bonds during the quarter, many investors, money managers, and pension funds changed their asset allocations. So, there may be some buying and selling in the market in the final days of the quarter.
The Bloomberg Global Aggregate Bonds index dipped by 1%, while the gauge of stocks across the globe, the MSCI All World index, was up for the quarter by 4%, and it was its third straight quarterly gain.
Over the recent session, the factors that may be affecting the market include $150 billion worth of equity selling and the same amount of bond buying as the estimated rebalancing flow from the JPMorgan strategists.
With the Cboe Volatility Index (.VIX) hitting a three-year low last week, equity gyrations have generally been mild, but some market players anticipate some turbulence in the days ahead.
“There might be little bit of noise,” said Michael Purves, chief executive officer at Tallbacken Capital Advisors. “The rest of the week is going to be choppy and weird and probably not that significant in terms of signaling broader trends.”
