ADVERTISEMENT

JPMorgan, Citigroup Feast on Equity Derivatives in Virus Panic

JPMorgan, Citigroup Feast on Equity Derivatives in Virus Panic

(Bloomberg) -- The historic panic in global stock markets has spawned a fortune for some of the world’s biggest investment banks.

JPMorgan Chase & Co. and Citigroup Inc. have added about $500 million in revenue from equity derivatives trading year-to-date compared with the same period in 2019, people familiar with the matter said. Trading surged as investors rushed to bet on stock moves and protect their holdings.

The spreading coronavirus has killed thousands, roiled the global economy and forced Italy to announce a nationwide lockdown. But for Wall Street’s trading desks, which rely on volatility to generate profit, the turmoil is an opportunity after investment banks long bemoaned the calmness of markets in recent years.

Patrick Burton, a spokesman for JPMorgan in London, declined to comment, as did Edwina Frawley-Gangahar, a spokeswoman for Citigroup.

JPMorgan, Citigroup Feast on Equity Derivatives in Virus Panic

JPMorgan has generated about $300 million of additional revenue so far this year, including about $50 million in one trading day in late February, according to the people, who requested anonymity as the details are private. Citigroup has made between $150 million and $200 million, the people said.

Recent swings in U.S. stock prices rank among some of the biggest in market history as investors struggle with the fallout from the coronavirus and an oil price war. That’s triggering a surge in demand for equity derivatives, which allow investors to make complex bets on shares and volatility in stock markets and protect against losses.

JPMorgan, Citigroup Feast on Equity Derivatives in Virus Panic

Read More: Volatility Superlatives Piling Up in Week of Shocking Reversals

Trading in options linked to the S&P 500 Index, among the most popular equity derivatives, surged to a record high of more than 3.5 million contracts in February. The CBOE Volatility Index jumped to the highest since 2008 on Monday.

The stock market chaos means equity derivative revenue may snap back from last year’s drop. Wall Street banks generated about $12 billion from equity derivatives in 2019, a 17% decline from the previous year, according to research firm Coalition Development Ltd.

“It’s been a good start to the year,” said Amrit Shahani at Coalition in London. “Our expectation is it will be better than 2019.”

The S&P 500 gained as much as 3.7% in early New York trading -- after a plunge on Monday -- as President Donald Trump said he would announce “substantial” economic measures on Tuesday in response to the virus. The rebound faltered as signs mounted that the stimulus is not imminent.

While traders desire volatility, sudden swings can lead to losses for banks as well. BNP Paribas SA, the biggest French bank, lost about $80 million on equity-derivative trades over a few days in December 2018 after markets were whipsawed by trade tensions between the U.S. and China.

JPMorgan, based in New York, is the world’s biggest player in equity derivatives, Coalition data show.

--With assistance from Yakob Peterseil and Stefania Spezzati.

To contact the reporter on this story: Donal Griffin in London at dgriffin10@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Dale Crofts, Keith Campbell

©2020 Bloomberg L.P.