The bank unit responsible for losses takes positions to hedge activities in other parts of the bank.
Should a portion of these calls be related to hedging activity among those actively shorting this sector, these calls offer protection on moves above the strike.
Hedging activity has indeed fallen off.
Gold Fields estimates that producers hedged 100 fewer metric tons last year than in 2000, when hedging activity also declined.
"Whenever you get a rally in the 10-year, mortgage hedging activity will exaggerate that," Mr. Jasper concluded.
But the law goes on to provide exemptions for such things as "trading on behalf of customers," "risk-mitigating hedging activity" and "underwriting and market-making activities".
This all suggests that the chief investment office's hedging activity is bundled into aggregated numbers, or buried in totals for "dealer/client" activity before the first quarter of this year.
Investors might have asked questions earlier about what was going on at the chief investment office if JPMorgan had more clearly broken out its hedging activity.
In its earliest form, the Merkley-Levin amendment to the Dodd-Frank regulatory law said that any "risk-mitigating hedging activity" — or hedging positions that reduced a bank's risk — would be allowed.
"They'd always tell us, 'Don't worry about that, it's just hedging activity,' " said John E. Olson, the research director at Sanders Morris Harris who was one of the first analysts to challenge Enron's practices.
That factor was the hedging activity of the nation's huge market in mortgages, a market worth more than $5 trillion that is substantially bigger than the market for Treasury bonds.
