HIPOS Weekly Update: VIX Call Options See Activity but No Volatility Follow Through

by | Mar 29, 2017 | Alternative Income, HiPOS (High Probability Options Strategy), Option Trading, Volatility

After last Friday’s successful expiration of our combined short spreads, ZEGA’s traders have been looking for the next HIPOS trade entry. We’ve talked before about how a short-term spike in volatility is often the pre-cursor to a new entry trade. The rise in volatility causes the options premiums to rise which helps in finding a qualifying trade under our strict entry rules. So far, we have not been able to satisfy the parameters as volatility has remained muted.

What was interesting ahead of the House vote on the healthcare bill was the noticeable jump in VIX call buying. Above a Bloomberg chart posted on the Wall Street Journal’s daily shot column displays the number of contracts separated by calls (white) and puts (blue). The article noted that it was the highest number of call option contract volume since Pre-Brexit last summer.

While this type of positioning seemed to show traders expecting a spike in the VIX, the components that would drive the VIX Index higher have not moved in kind. The VIX index is a measure of option premiums on the S&P 500 Index. While late Friday we did see the VIX jump higher it was only a modest one at best.

Being patient and disciplined is one of ZEGA’s hallmarks when it comes to our High Probability Options Strategy. By picking our spots and designing trades that give your clients the best chance for success, we look to position the strategy for winning trades over the long run.