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HIPOS Weekly Update: A Brief Volatility Window for Entry

After a brief end of year pullback in the S&P 500 the index has resumed its rally starting 2017. As we’ve been writing about, typically we need a volatility spike to enter a new position that meets all our criteria. That window opened for a brief time in the New Year which allowed us to establish our primary HIPOS position. Since entry, the market has moved higher and volatility has dropped. This is a positive for your clients currently in the trade. And we are now a week into our trade and thus a week closer to expiration day. This is helpful since as the graph above displays, the position has maintained its distance between the S&P 500’s current price and the defensive exit curve but we have less time until expiration. At midmorning in Monday’s session, the index is roughly 16% away from our short strike price.

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HIPOS Weekly Update: Ringing in 2017 with a New Trade

The market action Friday and todays retreat from the highs allowed us to capitalize on the available volatility premium. For this trade, we used S&P 500 Index options with a short 1990 strike price in our spread position. With the position expiring February 3rd, this means there are 33 days until expiration. As we benefit from time decay as each day passes, the Martin Luther King market holiday provides an extra day with no trading. Weekends and holidays benefit our positions as time premium erodes for your clients positions even when the market isn’t open.

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HIPOS Weekly Update: Why Volatility Matters in Finding Trades

Since our last HIPOS trade expired producing our target profit, our traders have been monitoring the market to find our next entry. While not entirely unusual to be in cash for a period in between trades, we realize that some advisors might be getting questions from their clients. Those questions typically are: when we will get in next and what is needed to generate those conditions? The short answer is: we need a short-term spike in volatility that will allow us to find a trade that generates the requisite amount of premium with a strike price that has sufficient distance from the underlying index.

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Need for Higher Returns Crept into Election Measures: Is it Risky Though?

With stocks mostly trading in a narrow range over the last couple years and bonds yielding paltry interest payments, many large institutions have been searching for alternatives to traditional asset allocations. Pensions have long been users of alternative strategies – but its use has been increasing with the pressure of making future payment obligations.

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HIPOS Weekly Update: Volatility Takes a Holiday

Currently our traders are monitoring the markets to find our next HIPOS trade entry. Advisors who have used our High Probability Options Strategy for their clients know that one of ZEGA’s strengths is our disciplined approach in following our strict rules. Long time followers also know that typically for an entry, we want to see some short-term spike in volatility. Since we are net sellers of premium, this allows us to place our spreads far enough away from the underlying index level while still generating the required return.

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Picking between IAS Strategies

Two months ago, ZEGA Financial lowered the minimum asset levels for investment in the two Equity versions of the Internet Advantage Strategy (IAS): Best Equity Picks and Equity Long Short. The minimum was brought down from $250,000 to $100,000.

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How Sharp(e) Have 2016 HIPOS Returns Been?

In the HiPOS strategies, clients may have noticed very smooth and consistent returns thus far in 2016. When we refer to risk adjusted return, we are measuring at how much volatility in the portfolio happened and the resulting performance return. Smooth and consistent is generally a characteristic of lower volatility. Your clients want the highest possible return with the least amount of volatility. What everyone wants right?

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Interest Rates on The Rise: Is the Great Rotation out of Dividend Stocks On?

Interest rates have suddenly jumped higher. The 10 Year Treasury yield, which had put a low in around 1.38% is now pushing above 2.25%. This is significant because we know that bond values have an inverse relationship to yields. Recently bonds have been getting hurt. Even though rates have risen, there is still much more risk to the upside if rates rise more. Advisors who are concerned about holding bonds because of the market value risk would do well to consider an alternative income strategy like our High Probability Options (HIPOS). One of the benefits of an alternative like HIPOS is that it enjoys almost zero correlation to interest rates.

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