HiPOS Conservative Update: How the Iron Condor Is Providing an Offset and Unrealized Profits

By Derek Moore

Effects of Time Decay on the Positions

As of the close Thursday, the remaining days until expiration on December 3rd sits at 15 calendar days and 9.5 trading days.

You might be confused with the half day, but keep in mind the day after Thanksgiving, the markets are only open a few hours. As we’ve moved through the trade, despite the call side being under pressure due to the price increase in the SPX (S&P 500 Index), its value is only slightly above where we sold them at.

As for the puts, a combination of time decay and favorable move higher has put greater distance between the short put strike and the current market price of SPX.

What Are You Rooting for to Happen?

Today the SPX closed about 4.2% OTM (out of the money) below the short 4900 and 15.4% OTM above the short 3975 put strike.

While price is still between the strikes, ideally, you’d like to see the SPX retrace a bit to open the margin a bit more. This also would result in the call side value coming in and deflating a bit without having much of a material effect on the put side.

The thing that time passing does is provide more room to breathe for the trade as evidenced in our graph.

What Our HiPOS Conservative Graph Is Showing

Each day that passes you’ll notice the purple defensive posture line move further up (or down) away from the current price of the underlying index.

You also get a feel for how close or not SPX currently sits in relation to the strike prices. A combination of the easing of price we spoke about earlier and more time passing would be favorable.

On the purple defensive posture line, remember the ZEGA trading team may decide to act by adjusting in positions that further reduce risk exposure.

Where Do We Sit as Far as Unrealized Gains or Losses in the Trade?

The trade closed at an unrealized profit thus far of around 0.6% with another approximately 1.1% to go still.

Remember we legged into the short put trade to create a short iron condor position. While the call side is slightly higher than were we sold it at, the put side has gained due to time decay and favorable underlying movement.

Selling premium on both sides allowed us to increase the potential profit target while offsetting the other side of the trade.

So that’s it for now. Next week we will be back with another update on the position.

As always reach out to a member of the ZEGA team with any questions.