What is the JPM collar?
The JPM collar is the name traders give to a large options hedge run by JPMorgan's Hedged Equity fund, which holds S&P 500 stocks and overlays a quarterly SPX options structure: it buys a put spread for downside protection and sells a call to pay for it. The position is reset at the end of each calendar quarter, and because it is large and its strikes are widely reported, traders watch those strikes as places where dealer hedging may concentrate.
How the structure is built
The fund holds a portfolio of large US stocks and, each quarter, puts on an options overlay using SPX options that expire at the end of the following quarter. The overlay has three legs, which are commonly reported as follows.
It buys a put roughly 5 percent below the market, which provides protection against moderate declines. It sells a put roughly 20 percent below the market, which reduces the cost of that protection by giving up protection beyond that level. Together those two form a put spread. It then sells a call a few percent above the market, with the strike chosen so that the premium from the call roughly pays for the put spread. The result is a hedged equity position with limited downside for a band of declines and capped upside for the quarter.
This is a standard collar structure. What makes this one notable is its size, the regularity of its schedule, and the fact that its strikes become public through the fund's disclosures and market commentary.
When it resets
The options expire on the last business day of each calendar quarter: the end of March, June, September and December. On that day the expiring structure is closed or settled and a new one is put on for the following quarter, at strikes set relative to where the market is trading at the time.
That date is not the same as quarterly triple witching, which falls on the third Friday of the quarter's last month. The collar reset usually comes one to two weeks later. The two are often confused in commentary.
If the market has rallied through the short call strike during the quarter, the fund has to buy back or settle that call at a loss relative to its premium, and dealers on the other side unwind the hedges they had built against it. That unwind can contribute to trading flows around the reset date.
What it does to dealer positioning
Think about the dealer side of each leg. The fund sells the call, so dealers are long that call, which means long gamma at the call strike. Long-gamma dealers hedge by selling as price rises toward the strike and buying as it falls away. That is why the call strike is often discussed as a level where rallies can slow during the quarter: the hedging leans against moves into it.
The fund buys the 5 percent put, so dealers are short it, which means short gamma at that strike. If the market falls toward it, dealer hedging leans with the move, adding to selling. The fund sells the 20 percent put, so dealers are long that strike, which can dampen moves if the market ever falls that far.
This is one of the clearer examples of why the standard assumption that customers buy puts and calls from dealers can be wrong at specific strikes. At the collar's call strike, the customer is the seller.
Keeping it in proportion
The collar is a large position but one of many. Its influence depends on how close the market is to its strikes, how much time is left before the reset, and how much other open interest surrounds those strikes. A call strike several percent away early in the quarter has little gamma and little effect. The same strike, with the market approaching it in the final weeks, carries much more.
It is also a known, public position, so other participants position around it. Treat its strikes as one more piece of the map: real structure with a known sign, worth seeing alongside the rest of the board, not a level the market is obliged to respect.
The reset itself is a better-known moment than the strikes. On the last business day of the quarter, the old structure comes off and a new one goes on at fresh strikes, so the dealer hedges attached to both the old and the new positions change on the same day. That is the point in the quarter when the collar is most likely to show up in trading activity, even if its effect on price is hard to separate from everything else happening at quarter end.
Common questions
When does the JPM collar reset?
On the last business day of each calendar quarter, when the expiring SPX options are closed or settled and a new collar is put on.
Why does the JPM collar act like resistance?
The fund sells the call, so dealers are long it and long gamma there. Their hedging sells into rallies toward the strike, which can slow moves into it.
Is the JPM collar the same as triple witching?
No. Triple witching is the third Friday of the quarter's final month. The collar resets on the quarter's last business day, usually later.
The JPM collar is a quarterly SPX hedge: long a put spread, short a call, reset on the last business day of each quarter. Dealers are long gamma at its call strike and short gamma at its upper put strike, which is why traders watch both as the quarter progresses.
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