'Just The Facts' On The JPM 'Whale' Unwind Rumor

Tyler Durden's picture

Believing 'people familiar with the matter', extending rumors of large trades, and extrapolating DTCC (the CDS data repository) data has apparently caused a number of mainstream media reporters to believe that the JPMorgan 'Whale Trade' has been 60-75% unwound. The assertion appears to be based on two things: 1) a rumor from a Credit Suisse desk of heavy volumes in the last few days; and 2) DTCC data showing open trades falling. While we restate that no-one knows what the trade was, we offer three retorts to these assertions: 1) there is nothing in DTCC data that suggests any recent change in trend (or dramatic shift in net or gross notionals); 2) the aggregate nature of DTCC data offers little insight into the actual changes (whether they be unwinds or opposing positions); and 3) today is single-name CDS and index credit option expiration which means the few days leading up to this will ALWAYS have heavy volume - especially at the end of a very dramatic quarter such as the one we have just witnessed. The bottom-line is that the 'price' changes in IG9, HY9, and IG18 do not suggest any 'recent' change in the unwind scale and while we would expect that JPM has been unwinding (at least the hedge of the hedge), no-one knows how much and given the market's awareness of the position, IG9 would dramatically underperform its whale-driven rally move (which it has not yet). Anything else is speculation - though it is clear that IG9 tranche notionals suggest the original tail-risk position remains on the books.


IG9 Gross data shows nothing out of the ordinary in either tranched or untranched (index) exposure changes...


IG9 net data shows nothing exceptional - tranched is hardly moved at all and untranched (index) has leaked lower but remains considerably higher than the start of the year.


This suggests that the underlying tranche position (tail-risk-hedge) remains on their books and they are offsetting the index hedge of the hedge using other indices.


And IG18 (which is the most recent and liquid index in investment grade credit) has seen a dramatic swing in the last two weeks in terms of number of open trades - which could reflect a broad grab for cheap macro protection and then squeeze out on the QE hope trade into the Greek elections...


and finally, IG9 10Y has sold off rather dramatically since Dimon's call but we note that given the market's awareness of the position, the deterioration in credit over the period, and index arbitrageurs scaling out in their face, we would expect the widening to be much more than the tightening rally that led into this (and not just equivalent to it)...



The bottom line is that the JPM unwind call is speculation.

Nothing factually provides any evidence that they have done any actual unwinds and in fact the lack of movement in IG9 tranche net notionals means we assume they continue to hold the tail-risk hedge - though have likely taken on opposing positions in IG18 and HY18 to reduce exposure overall.

Not understanding that the huge underperformance in the last quarter would leave a lot of credit options traders dramatically in-the-money or out-of-the-money - and likely led to the pick up in volumes this week that is being used as evidence for the unwinds on JPM occurring is a mistake. The single-name CDS roll and index options expiry is a huge impact on volumes (as we may see next week when DTCC provides the delayed data - though note that the DTCC data is aggregate across maturuty and so a roll would not impact it specifically).

No-one knows - though we assume some efforts have been made to at least reduce exposure as we noted.


Data: DTCC and CMA

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Why would you even announce that the position has been partially unwound or even that they had a losing position in the first place? It would be like showing your hand in a poker game. 

fuu's picture

Also why would the media be posting articles about a trade? I don't see any articles on any other positions or trades by any other bank today. Yet the JPM position story keeps bubbling up on the aggregators today.

Matt's picture

JPM is up ~20% in ~2 weeks from the lows. There must be a fair bit of confidence that either way, the losses are contained.

putaipan's picture

really so unqualified to contribute on this ....but here goes- so, you're all in under the cover of the whale in the city. some pesky independent web site identifies the bet before the euro crash exposing the vulnerabilities. so you go through all the rigamarole, mia culpas/5 billion dollar losses in order to essentially stay in the game and keep the bet.while everyone thinks you're getting out. euro is going down, just not when they thought.

putaipan's picture

on reading my own post that does seem very close to what happenned to mfglobal. corrazinne and jamie as bunk mates? putting off the europocalypse seems to bring down american tbtf's one by one ...

vast-dom's picture

if there is no unwind, then there is no (recorded) loss (on the books). which makes all of this even more suspicious.

midgetrannyporn's picture

your first sentence is called business as usual.

Stoploss's picture

Anyone who has a bank account at JPM, is going to wish they didn't.

Seasmoke's picture

could be why they keep offering me a free $125 just to open a checking account with them

GMadScientist's picture

So 75%...of 50% of the 20% of the fucked positions that they've fessed up to...or...7.5% unwound.


bdc63's picture

I don't wanna scare anybody, but I just saw a report that the moon appears to be kareening towards the earth ... expected impact zone is somewhere near 270 Park Ave. NYC ...

nobusiness's picture

Bernanke will provide the perfect unwind opportunity in 45 minutes.

BlandJoe24's picture

Tyler, do you still expect a 500bps pop in EURUSD with big qe announcement?

nobusiness's picture

I thought tyler was in the no new QE until market plunges camp?

BlandJoe24's picture

He wrote about a week or two ago that IF there was a big QE he expected a 500bps EURUSD pop.  But EURUSD has gone up since then and I don't know what he's still thinking about it.

I've also noticed that there's more than one Tyler voice on QE:  one voice saying what you noticed, that no QE unless market crash.  The other voice has, until a couple days ago, been saying things like:  "They MUST do QE". 

nobusiness's picture

I think the "must do QE" was when he refered to Goldmans position.  But, who knows.  Maybe no QE at the announcement and then QE at the press conference.  That would really smash the shorts.

BlandJoe24's picture

No not just gs, he "himself" - in one of the incarnations - said over and over that the fed MUST qe. I've been reading very carefully on this in the past weeks.  That's when i noticed there were two Tyler voices, as mentioned above.

And Hmmm...interesting... never thought the announcement and the press conference could be different...how devious.... that makes it possible... thanks for bringing that up.  Maybe that's why the market isn't plunging right now.... waiting for press conference....

Satan's picture

I am finding it quite difficult to understand the trade to be honest. Surely, unwinding their position is far too obvious?

Could it be that they are hedging the hedge of the hedge and in doing so wrong footing the market?

Or am I giving them too much credit? (no pun intended)

Seasmoke's picture

Ackerman said it best......if you have to hedge, doesnt that mean you have no idea what you are doing on your first trade

AmenRa's picture

The only reason this story appeared is that JPM is getting slaughtered on this trade. They will do anything to try and stop the bleeding.

NotApplicable's picture

Yep. And thanks to ZH, JPM will get very limited mileage from this latest episode of "managing expectations."

nope-1004's picture

+1.  Bankers smell blood from one of their kind.  Going in for the kill.  JPig is going down - mark my words.

NotApplicable's picture

Problem is, it won't make a bit of difference, other than who gets to sit in what chair once the music stops again.

bnbdnb's picture

I bet they turned this position into a gain, the other way. Slimeballs.

LawsofPhysics's picture

Correct.  There is no "unwind" or true "hedge" anymore.

If you can not physically touch it, guess what, you don't own it.

azzhatter's picture

You question my strategy? I am Jamie Fucking Dimon. I do as I please and if I lose, you will pay. I wear presidential cufflinks just to show you who I own. Do not question me or my strategy.

NotApplicable's picture

Anybody who wears those things while testifying before Congress should be immediately arrested for communicating a threat. After all, they don't seem to have a problem responding to the protesters who show up with messages directly on their shirts. Dimon's may have been more subtle, but it's every bit as threatening.

I'd like to say I find his level of hubris shocking, but I'm old enough now to know better. Besides, I've seen Caligula.

Clowns on Acid's picture

Only one counterparty that JPM can "unhedge the hedge of the hedge" with, without disturbing the markets and possibly not clearing through (or very slowly through)the DTCC....The US Fed.

The perfect unwind....

tony bonn's picture

babycakes, i gots news for youse....jpm ain't outta da woods by a longshot....

rumors like this suggest that matters are getting uglier than they already are.

mendolover's picture

Jamie and Ben two days in a row.  Great country wasn't it?  Thanks for the memories!