New HiPOS Conservative Trade
Today ZEGA’s traders were back at it finding a short S&P 500 Index put spread.
This vintage has only 9 trading days until expiration on December 29th. With today’s spike in volatility, we were able to find something that was within the requisite distance out of the money (OTM) to hopefully close out the year successfully for HiPOS. While HiPOS isn’t a directionally based strategy, we’ve found it better over the years to be opportunistic on days the market moves lower.
These days also see premiums increase as volatility moves higher.
Explaining The HiPOS Graph
Above we can see that compressed time frame between today and expiration (9 trading days).
The 3500 short put strike also happens to be below an old support area in the market. Again, we don’t trade directionally in this strategy, but just wanted to point out an adjacent point where our strike price sits. We have our usual purple curved line where should price pierce below our traders may decide to take a more defensive posture in the trade.
This one looks a little different than normal simply because there is so much less time until expiration.
Normally there is more of a slope down and to the right.
With this iteration, we will see that separation between the current price of SPX and that line as time passes.
What Are You Rooting For?
This trade is really about time.
You want to put trading days behind and move closer to expiration on Dec 29th. We also want price to firm up a bit here. Moving higher would be welcomed as well, but with shorter term trades, time decay becomes more of an asset earlier on.
The other aspect to watch is volatility.
The VIX Index was elevated today with the market moves. Ideally, some easing here would benefit us by bringing the value of premiums down.
With that, we’ll leave it here. Next week plan on another update. Until then is Die Hard a Christmas movie? I say yes!
Now for the Particulars:
- Index: S&P 500 Index
- Position type: Short Put Spread
- Short put strike: 3500
- Long put strike: 3450
- Put Spread Risk (prob. ITM): ~ 1% at time of entry
- Targeted total return: ~0.9%
- Distance Put Strike OTM: ~10% at time of entry
- Expiration: December 29th, or 9 trading days until expiration