HIPOS Weekly Update: Some Indecision in Market

by | Apr 20, 2017 | Alternative Income, HiPOS (High Probability Options Strategy), Option Trading, S&P 500/SPX, Volatility

As of mid-day Thursday April 20th, the market remains a good 12% away from our short 2075 put leg. With 22 days left until expiration, time decay has benefited the trade. At the same time, the further into the trade we get, the more distance between the current underlying S&P 500 Index price and our purple defensive exit curve pictured above.

While the market has been waggling back and forth like a Sergio Garcia golf club at the Masters, price has remained within a range. Some pundits on CNBC and Fox Business have been saying there is indecision in the markets. For our HIPOS strategy that’s fine, so long as markets don’t move too far too fast towards our short strikes.

A few questions came in from advisors this week around the continued low volatility environment. A couple asked about the fact that short term VIX spikes happen and then quickly recede. It’s smart to be looking at those things as excess volatility in the markets is what we are looking to capitalize on by selling premium. My discussions were a good reminder around why premium selling requires constant focus and rules. In previous blog articles, I detailed how our traders look for opportunities for new positions that frequently only present themselves for short windows before quickly closing. Some trades are there for only minutes.

So, while the low volatility environment continues, we can isolate instances where a trade meets our strict rules for entry. HIPOS is designed to be a piece in your client’s asset allocation. It is also a strategy that does not require the market simply move higher to generate potential returns. Over the next couple weeks your clients will be rooting for the underlying market to remain a good distance above the defensive purple line on our chart. They will also be excited for each new day that passes since that means more time decay has been removed from the premiums.