HIPOS Weekly Update: Running Out the Clock

by | Jan 31, 2017 | Alternative Income, HiPOS (High Probability Options Strategy), Option Trading, VIX

This week the primary HIPOS trade is set to expire. While the market gapped down this morning with a small volatility increase, the market remains safely above the purple defensive exit curve. Your clients shouldn’t expect much change in the value of the positions unless the S&P 500 Index were to dramatically move lower. As of the open this morning, the index remained over 16% above our short strikes.

As we’ve previously mentioned our traders will continue to monitor the market for any opportunities to roll to another trade if there is a benefit for your clients. For advisors bringing new clients and assets into the strategy, they will be placed into positions provided our strict criteria is met for entry.

Worth noting is just how low volatility has been. When I mentioned a volatility increase this morning, the near month VIX futures contract simply reached 13.40. Last week the VIX cash index you see on CNBC reached a low not seen since mid-2014. Below we can see that represented on a monthly VIX Index chart.

Traced in yellow highlighter, we are clearly at the bottom of a several years’ range. Each of these bars represents a month’s worth of price history. The top of the bar is the high for the month while the bottom is the low. The notches on the left are the open while those on the right represent the close for the month. Keep in mind volatility can and has gone lower. Believe it or not, in 2007 it went below 10. Remember though when looking for new entries, we like an increase in volatility as it allows a component of our strict rules to be met. Simply put, we are more likely to be able to put on a new position for your clients.