JP Morgan stock was down almost 10 percent in late afternoon trading to $36.80.
Some investors said JP Morgan would be able to withstand the fall-out from this bombshell.
Anthony Polini, analyst with Raymond James, wrote in a note to investors Thursday night that although JP Morgan's stock offers "exceptional value," he expects "some near-term pressure on the stock price due to uncertainty related to repositioning [its] hedging strategy."
Polini said that there is a "high probability that management will defuse this issue on or before" the company's conference call in mid-July discussing its second quarter results.
"This has permeated to the wider market as investors assess the possible systemic risk, adding another layer of caution to the fragile trading environment," Jordan Lambert, a trader at Spreadex, told the Associated Press. "When such shocks occur, it is wise to err on the side of caution and consider whether it is a possible 'tip of the iceberg' scenario, especially when one contemplates the interconnectedness of the banking system."
In Europe, the FTSE 100 index of leading British shares dropped 0.3 percent at 5,525 while Germany's DAX fell 0.3 percent too to 6,498. The CAC-40 in France was 0.7 percent lower at 3,107.
The euro was up 0.2 percent at $1.2952, though still near four-month lows against the dollar.
"The profit environment is very uncertain," WisdomTree's director of research, Jeremy Schwartz, said about the financial sector. "The mix of proprietary trading could be a big source of revenue and profit that is going away."
The Associated Press contributed to this report.