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ZEGA’s Take on the Short Volatility Trade Debate

On Friday, February 16th the main HIPOS trade expired at a full profit. In addition, the next HiPOS trade was executed on that same Friday and as ZEGA’s Jay Pestrichelli noted, we are now in our next trade that expires on March 16th (PM expiration this time). With the recent market volatility, it is likely you or your clients have seen various commentators on the investment networks talking all about the various short volatility strategies. Particularly considering the XIV (VelocityShares Daily Inverse VIX Short-Term) a short volatility based ETN (Exchange Traded Note) completely shut down and another popular ETF the SVXY (Proshares Short-Term Futures) traded down substantially in price.

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HIPOS Update: Rolling to Capture Volatility

The last HiPOS trade in the RUT calls and puts (Iron Condor) expired this morning successfully. This particular set of options expired as of the open on Friday versus the close on Friday like normal.  The chart above outlines how that one finished out. As...

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Fixed Income Update: Short Duration High Yield

While the overall stock market has seen a return of both realized and implied volatility, interest rates have witnessed a fairly material rise and some of the dynamics are worth noting. Above we can see that since January 5th of 2018, rates on the 10 Year Treasury bond are up nearly 16%, having seen the yield move from 2.45% to 2.85%. Normally when we see stock market corrections there is a flight to quality; meaning investors buy up treasuries as a safe haven. That has not been the case. In fact, it’s just the opposite. Some are pointing to rising rates as one of the many ideas for the recent selloff.

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HIPOS Update: Strategy Amidst Heightened Volatility-part 2

Volatility continued Tuesday morning with the overnight markets pushing the indexes down another 2%. However, once the market opened, there was an immediate bounce to erase the overnight lows. After sideways trading through the settlement of some VIX fund issues, the market began an upward movement post Europe’s close. The Russell 2000 finished up 1% for the day at 1507. Combined with the volatility drop of 20%, our RUT iron condor priced much better than yesterday allowing us to stay in the position. You can see on the chart above that we’re above the purple line, which is what we’re looking for to get a successful expiration.

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HIPOS Update: Strategy Amidst Heightened Volatility

Monday saw heightened volatility as markets continued to sell off showing a continuation from Friday’s market action. The move today gained momentum late in the day where markets quickly, in a relatively short time frame, closed at the lows. The various index futures also saw losses extend into the aftermarket before stabilizing in early electronic trading post close.

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