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HIPOS Weekly Update: Waiting for Time Decay

Another 5 days have passed and the Russel 2000 Index (RUT) has been relatively unchanged. However, the price of the HiPOS call spread has had significant time decay over the past week dropping from $1.15 to $0.50 after Wednesday’s close.
The reason for this is twofold, one, the sideways movement of the market is increasing the position’s probability of NOT going above the 1575 level. Said another way, if the market doesn’t rocket up like it did in Aug/Sep, the RUT won’t hit our short strike of 1575.

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IAS: Looking back at last Quarter’s Earnings season

The 3rd quarter of 2017 just finished. With it brings a close to Q2 earnings season. And we promised to always update how our equity picks did on their earnings announcement dates!

Our Internet Advantage Strategy (IAS) is all about finding hidden revenue trends inside of companies we might invest in. So, when we hold a stock leading up to or in to its earnings results, we basically believe it will be surprising on earnings.

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HIPOS Weekly Update: Waiting for Time Decay

With 29 days left to expiration our current HIPOS trade utilizing a call spread on the Russell 2000 Index is in its early stages. Currently the underlying index sits roughly 4.1% below our short strike price of 1575. It also remains below our defensive purple curve line shown in the graph above. We entered the trade after an outsized-up day in the market, although the Russell 2000 Index has continued to move higher.

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IAS – Update on risk posture and other observations

The fiscal quarter just ended and we thought we’d update you on a few important notes about the Equity strategies in the Internet Advantage Strategy family.

Risk Posture

Many of you may have noticed that we increased our bullish exposure on September 15th. We had moved to a more conservative posture on August 11th but by September 15th, our signals directed us to be more aggressive.

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Tail Risk Strategies Versus Buy and Hedge Retirement?

A couple weeks ago I got a question around what black swan risk or tail risk protection funds do and how they compare with ZEGA’s Buy and Hedge Retirement Strategy. Black Swan risk is a term that re-emerged during the 2008 financial crisis when markets experienced severe downturns thought to be historically improbable based on financial models. Black Swans are considered unknowns that could not be predicted but when they occur they cause shocks to the markets. Tail Risk is also a term we hear a lot. These models look for results that are outside of the normal probability curve, they reside in the tails to the left or right side.

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HIPOS Weekly Update: New Trade on the Call Side Entered

With volatility depressed as markets continue to dabble around all-time highs, today for the second time this year a bearish short call spread appeared on ZEGA’s radar that qualified for entry. Now we realize that long-time HIPOS strategy alums normally see short put spreads entered below the current market. Instead a short call spread involves selling a lower strike call option paired with a long call strike higher above the current market. While those following at home typically are rooting for the markets to stay as far above the short-put strike, for this one you’ll need to switch jerseys and root for the price of the underlying Russell 2000 Index to remain as far BELOW the short strike as possible.

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HIPOS Weekly Update: Volatility on Fall Break?

Last Friday saw a successful expiration of our latest primary HIPOS trade. As we’ve previously pointed out, when trades expire worthless they are then removed from your clients’ accounts thus realizing the full profit. Our traders, as always, are analyzing conditions to find the next entry that meets our stringent rules. Regular followers of the blog understand that typically new trades are placed around short-term spikes in volatility. Over the past couple of years, we are experiencing periods of low volatility, quick jumps, and then drops back to the low volatility environment.

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Buy and Hedge Retirement Portfolio Update: Locking in Gains

This week our traders made some portfolio adjustments within the Buy and Hedge Retirement strategies to lock in gains and raise the hedge to a higher level (reducing downside risk).
As a reminder, Buy and Hedge Retirement is the strategy which looks to capture much of the equity upside of the S&P 500 Index (or other markets) while substantially reducing the downside participation. You can view this relationship below in the comparative profit and loss chart.

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