HIPOS Weekly Update: Volatility Emerges and a New Trade is Placed

by | Nov 15, 2017 | HiPOS (High Probability Options Strategy), Volatility

This morning we saw the Nasdaq 100 Index gap down from yesterday’s close along with an increase in volatility. As we mentioned last week, our traders were waiting to find an entry which qualified under our entry rules after the expiration of our last trade at a full profit. Above you’ll notice our normal graph which highlights the expiration date of December 15th, the short strike in the put spread of 5475, and our normal purple defensive posture curve.

This trade will have 29 calendar days until expiration. As always, I’ll point out that in that time we have a couple weekends and a holiday in which the markets will be closed. Despite markets not trading, time decay can still erode which would be a positive since we are selling options and want the value of the position to eventually move to zero.

A reminder that the closer the trade moves towards expiration day the more room it has to breath. You can see that illustrated by our purple curved defensive posture line above which represents the level our traders may have to act to minimize potential losses. Early in the trade you may see greater fluctuation in the value of the position as well.

Finally, as you or your clients are looking at the value of the spread position, keep in mind that generally spreads are traded at the mark or midpoint between the bid and ask. Depending on the custodian holding your assets, they may show the position at the natural price which would be taking the higher of the bid and ask for the short side and the lower of the bid ask for the long side. This may show positions to be higher in value than they are. Remember, we take in premium and then want the value to move lower.

As always reach out to a ZEGA team member with any questions. Now for the particulars:

Index: Nasdaq 100 Index (NDX)

  • Position type: Vertical spread
  • Short strike: 5475
  • Long strike: 5425
  • Risk (prob. ITM): 1% at time of entry
  • Targeted return: 1.2% ($.60 on a $50 requirement)
  • Distance OTM: ~12% at time of entry
  • Expiration: December 15th: 29 calendar days to expiration at time of entry


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