HIPOS Weekly Update: Remaining Below the Curve

by | Oct 19, 2017 | Alternative Income, HiPOS (High Probability Options Strategy), Option Trading, Volatility

With 15 calendar days until the November 3rd expiration day, the underlying Russell 2000 Index remains about 4.7% below the short 1575 call strike. As time decay has continued to build, the mark or value of the spread has come back down from where it closed at the end of the quarter. Remember, as net sellers of premium we want to take in premium by selling spreads and then see those drop to worthless in order to realize a full profit.

As time continues to tick away, the market remains below our defensive purple curve line shown above.

The spreads pricing is dynamically adjusting in value as the underlying market moves. Early on in a trade is typically when we see more price movement as we’ve mentioned on previous blog articles. When positions are closer to expiration and further out of the money your clients should see much less movement in the price.

We continue to monitor the market for opportunities to add a second call spread leg or add a short-put spread position which would result in what is called an Iron Condor. This simply is when an account holds both a short-call and a short-put spread at the same time. Of late, volatility continues to be on the lower end.

Source: YCHARTS

Above we can see the year to date CBOE VIX Index. This past week we’ve seen a slight uptick but it remains to be seen whether this will lead to anything lasting. This year it seems we remain in a muted volatility environment where any spikes are very short in nature before return back down to lower historical levels.

As always, reach out to the ZEGA team with questions. Off course if we make any adjustments we will be back on the blog with the details.

Check the background of these investment professionals on FINRA's BrokerCheck »