New HiPOS Conservative Trade
After last week’s successful expiration of the previous HiPOS trade at full profit, the team was back at it today taking advantage of the continued elevated volatility.
The new short put spread trade today runs until October 14th and targets about a +1.1% return. With higher volatility, you’ll notice that the distance between the current S&P 500 Index price and the short put strike of 3100 is large. With higher volatility the ability to sell spreads further out of the money (OTM) is a benefit for a short volatility strategy.
That distance at the time of entry was 17.8% OTM.
Reading The HiPOS Graph Above
Our typical graph begins with the price chart of the underlying asset S&P 500 index along with the 3100-level illustrating where the short put in the spread lies.
You’ll notice the purple curved line which represents areas where if price should close below, our traders may elect to take a more defensive posture to further manage risk. Think of this as measuring how much room to breathe the trade has at different points along the calendar as we march towards expiration day. Early on you have less since the benefits of time decay haven’t really started to accelerate.
The slope down and to the right helps to show the relationship in the risk contained in trades.
What Are You Rooting For?
For HiPOS, you don’t necessarily need the markets to go higher for the trade to wind up profitable.
In fact, price can stay sideways or go lower. You just don’t want price to move too far down too fast. One of the benefits of HiPOS is that it can potentially be a differentiator within portfolios due to the ability to provide anti-correlations to your long equity holdings and interest rates.
As the trade moves along we’ll be back with more updates.
As always, reach out to a member of the ZEGA team with any questions.
Now for the Particulars:
- Index: S&P 500 Index
- Position type: Short Put Spread
- Short call strike: 3100
- Long call strike: 3050
- Put Spread Risk (prob. ITM): < 1% at time of entry
- Targeted total return: ~1.1%
- Distance Put Strike OTM: ≈17.8% at time of entry
- Expiration: October 14th, or 16 trading days until expiration