While no-one knows exactly what the 'whale' trade was (we suspect a senior tranche trade tail-risk hedge whose risk-management hedging went pear-shaped), how much was done ($150bn notional seems consensus), and what the losses are likely to be (approximately $4bn is easy to see given the moves in IG9 10Y alone; though $9bn seems a stretch - albeit the kitchen-sink nature and perhaps inclusion of the losses from the long-book that this was supposed to be hedging - and the other positions that were used to hedge - may push it up to $6bn plus); we prefer to fall back to what has been a tested and true arbiter of JPM's underlying value (ex equity exuberance) - the CDS market. Given the current moves in prices, CDS appear to be looking for another 5-10% downside here before JPM's equity price is back in line with the credit market (of course this could also mean CDS needs to tighten aggressively or both). In the meantime, this message was brought to you by the acronyms DVA, LLP, CDS, and DV01; the number '9'; and the word 'book-value'.
Today's lesson - know what you don't know - you don't have to trade every name!
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Charts: Bloomberg