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HiPOS New Trade Update: Volatility Allows Quick Turnaround

New Trade 

Today ZEGA’s traders jumped on a new trade with volatility still at elevated levels.

One of the benefits of higher volatility is going from one expired trade to a new trade without much time between. This iteration was put on with roughly 18% distance between the current price of the S&P 500 Index and the short 3650 by 3600 put spread. We’ve kept the expiration relatively short on this one going out 18 trading days on the calendar for an April 14th expiration.

When volatility is higher, we can get further away, take in the required premium, and be closer in expiration.

Explaining Our Normal HiPOS Graph

Above we can see our chart of the S&P 500 Index along with expiration day in the dotted vertical line, short 3650 put strike in orange, and purple curved line.

The distance between price and our short strike is the distance out of the money. We also want price to remain above the purple defensive posture line. Early in the trade, before time premium erodes, there is less room to maneuver. As we get along towards expiration date, it moves down and to the right.

As a reminder, the purple curved line represents areas where ZEGA’s traders may take on additional risk mitigation tactics should they warrant.

What Are You Rooting For?

You want the underlying market to go sideways or up for a while.

Ideally early in the trade especially. But the benefit of HiPOS is that the strategy can generate income even if markets move lower. So long as the move isn’t too far and too fast downward towards the short strike.

As we move along in the trade we’ll be back each week with updates.

Now for the Particulars:

  • Index: S&P 500 Index
  • Position type: Short Vertical Put Spread
  • Short strike:3650
  • Long strike: 3600
  • Risk (prob. ITM): ~1% at time of entry
  • Targeted return: ~1.0%
  • Distance OTM: ~18% at time of entry
  • Expiration: April 14th, or 18 trading days until expiration