Equity derivatives house of the year: JP Morgan

Risk Awards 2026: Volatility strategies and technology investment help realise hyper scale-up

The US team: Blair Davis, Saad Chamich, Shmuel Sorkin, Justin Sumner, Nkonye Soetan, Brandon Igyarto, Rachid Alaoui, Rui Fernandes, Valerio Gaspari, Charlie Che, David Rademeyer, David Ruso

Photo: Alex Towle

The bronzed behemoth that houses JP Morgan’s new headquarters has redrawn the New York City skyline. It’s a statement of towering ambition that the bank’s equities division is playing its part in meeting. Already a top three player – equity revenues are up 26% so far this year and equity derivatives by even more – the bank is embarking on a massive scale-up which would enable it to handle a staggering fivefold jump in activity over the next three years.

Even so, Rachid Alaoui, JP Morgan’s global equities head, is quick to clarify that this hyper scale-up is no cast-iron prediction of where volumes are headed. “The hard reality is that a lot of people mispriced the growth of equities markets, including ourselves,” says Alaoui.

After trading surged during the Covid pandemic, a widely anticipated normalisation has failed to occur.

We didn’t have these things three years ago and we had a decent franchise, but I can’t see how we could live this year without those platforms

Rachid Alaoui, JP Morgan

“We’re prepared for the down scenario, but what we can’t afford is a situation where we have our head in the sand, talking about normalisation, and activity just keeps exploding,” says Alaoui. “At some point, you need to anchor yourself to the data and forget the fact that things may or may not come back to where we were pre-Covid.”

The planned expansion starts from a very high base. The 26% growth in equities revenue in the first three quarters of 2025 was fuelled by equity derivatives growth of 40%. And the bank has been setting new records across the board – flow, exotics, corporate derivatives and delta one.

The quantitative investment strategies (QIS) operation was a bright spot. Known as Strategic Indexes, total notional in the business sailed through the $100 billion mark, cementing the bank’s top-tier credentials.

Equity volatility strategies – the lifeblood of the bank’s cross-asset QIS business – provided much of the fuel, pulling in 70% revenue growth for an overall 35% revenue improvement across the QIS business as a whole. High-conviction strategies, including equity dispersion, short-skew carry and intraday momentum on single stocks, proved to be good performers though April’s tariff turbulence, winning the bank Risk.net’s inaugural QIS house of the year.

Emea team, left to right: Louis Moussu, Matt Legg, Florence Natali, Ben Wood, Ludovic Peiron, Alex Tiers, Arnaud Jobert, Mohamed Hemissi, Tobie Duprey, Deepak Maharaj, Dan Roose, Chloi Karyda, Ben Rostein

Photo: Juno Snowdon

And while JP Morgan prides itself on being in the top three across most equity derivatives activities, one area it is targeting for growth is US flow, where Alaoui says the bank has historically punched below its weight.

The bank massively ramped up activities over the past year, particularly in single-stock flow, where it capitalised on improved vol analytics tools to spot dislocations and provide execution through the turbulence.

“We have all of the ingredients to be number one or two. That’s still a work in progress. I don’t want to underplay the massive growth in US flow trading of the last five years. It’s day and night compared to where we were five years ago, but I wouldn’t say it’s ‘mission accomplished’ yet.”

Building tech

The 2025 performance follows what Alaoui calls a “Goldilocks scenario” – a sweet spot of elevated volatility and dispersion without the market breaking apart, while April’s Liberation Day tariff announcement triggered mass repositioning as clients bet on new winners and losers across geographies and sectors.

Managing this deluge relied heavily on recent investments in platforms and technologies. Automation tools like Robotrader, Trex and Execute have been deployed to great effect and are central to the next leg of the bank’s growth ambitions.

In the US, this autocall ETF business is becoming mainstream and we are seeing similar initiatives in Europe

Ludovic Peiron, JP Morgan

Nearly half of all flow vanilla requests-for-quote (RFQs) were auto-quoted via Robotrader – up from 33% in 2024 and 23% in 2023. The number of RFQs handled through Execute – the bank’ execution platform –  tripled in 2025, while trading on the platform more than doubled. Deploying it allowed the bank to unlock flows that were not previously economical – such as $5 million call options, which typically ramp up during turbulent periods like those in April.

One asset manager says the bank is “front of the pack” on options infrastructure, noting few others can rival JP Morgan’s technology focus to serve growing demands.

Alaoui compares these tools to the evolution of the mobile phone: “At first, it’s a ‘nice-to-have’, then two or three years down the line you ask yourself how you lived without it. We didn’t have these things three years ago and we had a decent franchise, but I can’t see how we could live this year without those platforms”.

The scale resonates with clients. Among them, a hedge fund manager welcomes the breadth of the offering, noting the bank covers “most, if not all, the products we trade” and adds that the bank typically ranks number one in pricing and service. “They help us understand the product and take us on a journey,” this person says.

Apac team, left to right: Ron Chan, Sim Ee Cheah, Alex Staab, Ker Lih Gan

Photo: JP Morgan

In corporate derivatives, the bank unleashed an artificial intelligence-powered tool aimed at improving the discount offered to firms in stock buy-backs. Originally launched in 2023, this ‘deep buy-back’ approach, which learns optimal execution from simulated scenarios, became the core strategy for all Europe, Middle East and Africa-based buy-backs in 2025, covering more than $7 billion in notional across 16 separate deals.

In one $300 million European mandate, JP Morgan says the tool helped generate a 0.8% improvement on the discount compared with a deterministic execution strategy – a sizeable improvement in a market where discounts are typically 0.5% to 1.5%.

Scale innovations

But 2025 was more than just a volume story. The bank was in the driving seat for some of the year’s most significant developments – from the first systematic autocall exchange-traded fund to managing the year-end stock borrow dislocations. It also pushed high-conviction, light exotic trades that proved their mettle through April’s Liberation Day turbulence.

The autocall ETF needs little introduction, having attracted intense media attention and an impressive $400 million in assets within five months of its June launch. The culmination of a three-way partnership between fund manager Calamos, JP Morgan and indexing firm MerQube – the Calamos Autocallable Income ETF – provides exposure to a laddered index of autocallable notes

We’re in a position to show aggressive pricing and some clients are increasingly asking us to wrap this type of semi-systematic trade into a single package

Arnaud Jobert, JP Morgan

JP Morgan delivers swap exposure on MerQube’s US Large Cap Vol Advantage Autocallable index, which packages 52 hypothetical notes referencing underlying Vol Advantage indexes – an earlier JP Morgan innovation aimed at improving autocall yields.

Ludovic Peiron, JP Morgan’s head of equity derivatives sales, sees global scope for this new product range.

“We’re all very excited because we’ve seen a new market being developed,” says Peiron. “In the US, this autocall ETF business is becoming mainstream and we are seeing similar initiatives in Europe as well.”

When it comes to new ideas, JP Morgan is committed to an ‘innovation at scale’ ethos.

Emea trading/structuring team, left to right: Ben Rostein, Florence Natali, Alex Tiers, Arnaud Jobert, Ben Wood, Chloi Karyda, Louis Moussu, Mohamed Hemissi, Deepak Maharaj

Photo: Juno Snowdon

This was evident in the light exotics space where the bank traded more than $100 million vega notional on index exotics over the past year. The bank focused on a handful of high-conviction trades for hedging and defensive carry that would deliver as the new US administration implemented its policies, including its controversial tariff plans.

“When it comes to innovation, sometimes it’s very tough to scale,” says Arnaud Jobert, JP Morgan’s global head of strategic indices structuring and solutions, and global head of equities structuring. “What we demonstrated this year is with a few high-conviction products, with some exotic payouts which can also be wrapped into a semi-systematic programme, we can deliver scale.”

Clients appreciate these efforts. Bill Papalexiou, portfolio manager at Australia’s Cbus superannuation fund, welcomes the bank’s ability to cater to individual client needs. “The equity derivatives team have also been good in showing us some unique ideas and implementation methods that we can trade and partner on,” he says, adding a nod to the bank’s “high quality” research.

Pushing up

In late 2024, the bank was pushing resettable put hedging programmes, allowing investors to maintain protection via options whose strikes are revised upwards as equity markets edge higher. Investors bought 90% strike puts on the S&P 500, resettable at 5% thresholds. For a zero-cost hedge, these were typically financed by the sale of 80% strike vanilla puts.

“Those trades had four resets, so instead of having a 10% put spread, you had a 30% spread as you entered into ‘liberation’ week and a hedge that paid out extremely well, starting from a costless position,” says Jobert.

$33 billion

Total assets in Mansart, JP Morgan’s internal asset management company

In early January, the bank demonstrated its thought leadership with a research paper for long-dated UpVar as a defensive hedge – its highest-conviction trade of the year. A variation on the vanilla variance swap, UpVar accounts for variance only on days when spot is above a fixed level. This cuts exposure to the more expensive downside strikes and reduces the negative cost of carry.

JP Morgan noted uniquely low entry costs. Three-year Euro Stoxx 50 UpVar was pricing nine vol points lower than vanilla variance – a 20-year low. As spot rose post-Liberation Day, the structure drifted towards a vanilla payout, capturing the full convexity profile at a low cost.

“That trade worked out very well for our clients in 2025 and we’ve done it at very large size,” says Jobert, noting “tens of millions of dollars” in vega notional in these trades alone.

Emea sales team, left to right: Matt Legg, Ludovic Peiron, Chloi Karyda, Tobie Duprey, Dan Roose

Photo: Juno Snowdon

A defensive carry trade – knockout var versus vanilla var – attracted double-digit vega notional. Investors bought one-year S&P 500 variance, while selling knockout variance struck around 102, locking in typically around two vol points as a carry. These two legs offset when markets drop. As spot increases, the short leg knocks out, leaving investors with a long variance position, which can be rolled or unwound.

Many investors opted to sell more knockout var at attractive levels following a repricing of volatility and skew. Given the frequency of rolls on these knockouts, some clients traded the strategy in a semi-systematic programme via total return swaps.

“Because of our platform investment, we’re in a position to service those rolls frequently,” says Jobert. “We’re in a position to show aggressive pricing and some clients are increasingly asking us to wrap this type of semi-systematic trade into a single package, with some kind of default execution as well. For all those reasons, we’re in a good position to deliver that scheme.”

Dispersion trades, which see investors take a short position in index volatility and a long position in constituent volatilities, have long been the bread-and-butter of the exotics business. Going into 2025, JP Morgan’s high-conviction approach was to structure the long single-stock legs with mono-corridor variance. The dealer sold tens of millions of vega on this format.

US trading/structuring team, left to right: David Rademeyer, Saad Chamich, Rachid Alaoui, Rui Fernandes, David Ruso, Blair Davis

Photo: Alex Towle

Mono-corridor variance provides volatility exposure within a strike range – typically 70% to 120% – and can be perfectly replicated with vanilla options. Improved liquidity compared with volatility swaps means investors can secure tight bid/offers on the way out – something Jobert says many clients took advantage of in April.

He adds that these instruments are a neater way of localising the gamma exposure the bank amasses from single-stock inventory associated with its retail structured products flows. Ease of replication means the bank could offer exposure to a broader range of names than those available from its retail flows, which were heavily concentrated in the tech sector.

“From a client standpoint, it’s a more diversified, scalable long vol programme,” says Jobert.

Borrow dislocations

In late 2024, when the cost of financing synthetic equity positions spiked, JP Morgan acted in a few different ways for clients to access potentially lucrative dislocations.

Bullish equity expectations following the US election led to unprecedented futures positioning and record leverage going into the year-end. By mid-December, CME-listed adjusted interest rate total return futures (Air TRFs) on the S&P 500, which measure the cost of financing synthetic exposures, surged to 227 basis points over the risk-free rate.

JP Morgan stepped in with its own balance sheet to meet insatiable appetite for leveraged exposure – banks that sell futures hedge these positions by holding underlying equities on their balance sheets. Yet year-end reporting for risk metrics used to calculate the capital surcharge for global systemically important banks (G-Sibs) exacerbates these funding stresses.

For hedge funds seeking leveraged exposure to a normalisation, the dealer offered options on TRFs. Investors could buy puts or put spreads on the TRF to position for normalisation or sell calls and call spreads on the underlying as a carry strategy.

US sales team, left to right: Justin Sumner, Nkonye Soetan, Brandon Igyarto, Shmuel Sorkin

Photo: Alex Towle

While it doesn’t yet clear the ‘innovation at scale’ bar – the bank sold around $200 million notional of these instruments – Peiron views this as “creating a wallet” prior to scaling up.  “We’ve been more active, especially on the European side,” he says. “It’s a very simple trade, not necessarily to risk-manage – but simple to explain to clients.”

While asset owners commonly invest surplus cash into short-term financing solutions to benefit from elevated financing costs, JP Morgan stepped this activity up in 2024, enticing asset owners to deploy balance sheet for horizons of up to two years via the bank’s internal asset management company Mansart.

The bank has raised $7 billion through three flagship funds, denominated in US dollars, euro and sterling, which offer exposure to equity financing rates. The funds come with daily liquidity and pay an enhanced spread compared with money market funds, typically 40–50bp.

“We sold those funds to broad client types from corporate treasurers to insurance companies and asset managers, and even bank treasurers, so it has been a blockbuster this year,” says Peiron.

Mansart grew total assets to more than $33 billion in 2025, adding more than 30 new funds.

Peiron likens the platform to a Swiss army knife in “being able to gather different clients, from vanilla money markets to more complex QIS strategies, in closed and open architecture”.

One asset manager client identifies Mansart as a real competitive advantage. Being able to launch a Ucits fund within six months, for example, is “really something if you think about the regulatory content” involved, he says: “What impresses me is their ability to deliver.”