HIPOS Weekly Update: Down the Middle

by | Mar 8, 2017 | Alternative Income, HiPOS (High Probability Options Strategy), Option Trading, Volatility

With 8 days until expiration our current HIPOS primary trade, the underlying index is in the middle range of both our short call and short put strikes. As of the close Tuesday, the Russell 2000 Index sits 8.35% below the short call strike and 10.54% above the short put strike.  The index level is benefiting both sides of the positions currently.

We know that some advisors and their clients have called our offices to get a little more understanding of this current trade. When we initially put on the call side, it was the first time in several years that a call spread was available that met our trade criteria. Then, adding the put side turned our position into a short iron condor. Remember that the ‘iron condor’ name is a fancy name that describes both a short call spread and a short put spread at the same time.

Since HIPOS is a short spread premium selling strategy, the iron condor remains consistent with our objectives. What is a little different with this type of position is you need to adjust your desired market outcome a little. I’ve been telling advisors to hope the price of the underlying index stays far enough away from both sides. As always, you’ll be rooting to get to expiration as time decay continues to be a positive.

Every now and then I like to relay a little additional insight into the strategy. In talking to our traders, one of the things of interest is how short the window has been to find qualifying trades to enter so far in 2017. We’ve referenced how HIPOS is very opportunistic with strict rules. This last position (especially the call side), we capitalized on a very brief opportunity. Sometimes trades qualify for only a day because the price does not remain available. Sometimes its hours or even minutes.

One of the benefits of using ZEGA to manage a short volatility strategy is our ability to pick our spots and remain disciplined. This goes for both the entry and management of positions to expiration. Even today, ZEGA’s traders are evaluating and planning the next group of trades. Of course, they keep their eye on the current ones in case defensive or opportunistic action is required prior to expiration day.