HiPOS Trade Update: Benefiting from the Relief Rally

Where the Trade Currently Stands

With the short put spread resting 23% above (out of the money) the respite from the selloff has been a welcome sight for the strategy.

Both a reduction of volatility and the turn higher in the underlying S&P 500 Index have resulted in the current value of the spreads declining nicely against our initial credit received. You might remember this current position was a result of rolling the prior trade out and down. Out meaning to a further expiration of July 15th, and down to a lower short put strike.

After today’s close, only 13 trading days remain until expiration.

Update on our HiPOS Graph

Above we can see the positive movement in the S&P 500 but also the distances.

First, we see how far above the purple curved line markets are. This is the area should price go below ZEGA’s traders may take a more defensive posture. Each day that passes it moves further down and to the right representing the time decay benefit in short volatility trades.

Because volatility was so high when we rolled to this position, the 3000 short put level looks far away because the higher the volatility, the further OTM we can sell spreads.

What Are You Rooting For?

Moving forward, given how far out of the money the position is, you are fine with some sideways chop for a bit and there is room for some retracement as well.

Of course more of a ,move higher would certainly benefit the position. The key here is the passing of time. The closer to expiration day, the more improbable it is the market touches the 3000 level or moves towards the purple curved line based on how the options probability math works.

This coming weekend being 4th of July, in theory you get an extra day of time decay while you are out grilling hotdogs and burgers.

It’s a little more complicated than that but for now we’ll leave it there until next week.