HIPOS Weekly Update: Volatility Shows up In the Nasdaq 100 Index

by | Nov 30, 2017 | ETFs, HiPOS (High Probability Options Strategy), Option Trading, Volatility

With only 12 trading days left until the primary HIPOS trade expires on December 15th, the Nasdaq 100 Index (NDX) remains over 13% above our short put strike and well above the purple defensive posture curve. This is despite today’s move lower by more than 1.5% in the index. We regularly remind readers that the further a HIPOS trade moves towards expiration, the more breathing room it has as evident above by the downward sloping defensive purple line.

What is interesting with todays midday market action is how divergent the move in the NDX is compared to the Russell 2000 Index, up another .75%, and the S&P 500 which is essentially flat. Part of the reason for the divergence is both the companies within each index and their weightings within the index. Consider below a short list of the top weighted companies within the QQQ ETF which replicates the Nasdaq 100 Index. The right-hand side of the column represents the percentage weighting.

Source: Morningstar

Both Apple and Alphabet Inc A&C (Google) are down as of this writing over 2.5%. Divergence within the market, or non-correlation is a continuing theme over the last year. That non-correlation also in some ways leads to lower volatility as some names are moving higher while others lower thus muting overall stock market moves.

We know that many advisors are adding money as they bring in new clients or re-allocate existing portfolios. For clients that have been waiting for a HIPOS trade, today’s drop in the NDX provided an opportunity to enter HIPOS for those clients. Normally when we discuss HIPOS on the blog it is tied to our primary trade. But as many of you know, if new money is brought in, it can be placed in positions provided the trade meets ZEGA’s strict criteria.

Should ZEGA’s traders make any changes to the positions we will be back on the blog to deliver updates.