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HiPOS New Trade: Volatility Groundhog Day?

By Derek Moore

Last Friday the markets sold off on a spike in volatility. Many thought that would continue Monday but instead the markets rallied until this morning. Today the market saw its shadow and once again we see a short-term spike in volatility as markets sell off prior to the weekend.

This action in the market provided the needed inputs in the ZEGA HiPOS model to qualify a new HiPOS Conservative Strategy trade. With the surge in volatility we were able to find a short put credit spread that was 13.6% out of the money from the S&P 500 Index price at the time of the trade.

The expiration for this one will be March 6th which is 28 calendar days or 19 trading days until expiration with the Feb 17th Presidents Day Holiday. This trade is towards the shorter end of our normal time to expiration and the ability to find a trade with the requisite premium over that time frame is due to that increase in volatility levels.

This iteration has a target profit of about 1.1% and we are utilizing the 2875 / 2825 S&P 500 put strikes. This new trade comes less than a week after our recent position expired at a full profit. While sometimes we need to wait in cash to pick our spots, the wait was only 4 full trading days before this opportunity arose.

Below I’ll post the normal statistics for the position. As always reach out to the ZEGA team with questions.

 Now for the Particulars

  • Index: S&P 500 Index
  • Position type: Short Vertical Put Spread
  • Short strike: 2875 
  • Long strike: 2825
  • Risk (prob. ITM): <1% at time of entry
  • Targeted return: 1.1%
  • Distance OTM: ~13.8% at time of entry
  • Expiration: March 6th or 19 trading days till expiration