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HiPOS Trade Update: Layering on a Short Call Spread

New HiPOS Conservative Trade Creating an Iron Condor Position

Today ZEGA’s traders uncovered an opportunity to add additional premium by selling the other side of our existing short put spread.

By selling a short call spread above the market, we’ve brought in an extra potential profit of 1%, while joining the existing expiration date of August 19th. This opportunity showed up due to the large run up in stocks after the Fed announcement coupled with continuing higher levels of implied volatility in markets.

ZEGA always looks at both sides of the trade and chooses the best one given the return and risk profile.

What is an Iron Condor?

Really just a fancy way to say we are short both a call spread and a put spread at the same time.

The benefit is that a market can’t be in two places at once. Off course either side can come under pressure should markets move too far, too fast in that direction. Further, as you’ll see in the particulars below, we almost doubled our potential target profit over the same time frame. We also see time decay on both sides of the trade.

Some might be asking, why doesn’t ZEGA do this all the time?

The reality is that often, the call side does not qualify under our strict rules for entry.

Explaining the HiPOS Graph For a short Iron Condor

Still the same graph, with the addition of the short call strike dotted horizontal like ABOVE the market.

Plus, we now can see two purple curved lines. This represents areas should price move above, or below, ZEGA’s traders may take additional measures to manage risk. You can see that you are now rooting for the market to primarily trade sideways. Same as always though, as long as markets don’t move too far too fast in either direction the positions should work.

We know this might be new for some so as always reach out to a member of the ZEGA team with questions.

 Now for the Particulars: (Updates Bolded)

  • Index: S&P 500 Index
  • Position type: Short Iron Condor Spread
  • Short put strike:3200
  • Long put strike: 3150
  • Short call strike: 4425
  • Long call strike: 4475
  • Put Spread Risk (prob. ITM): ~1% at time of entry
  • Targeted total return: ~2.1%
  • Distance Put Strike OTM: ≈18% at time of entry
  • Distance Call Strike OTM: ≈9.5% at time of entry
  • Expiration: August 19th, or 17 trading days until expiration