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HiPOS Update: New Trade as Volatility Holiday Ends

HiPOS (High Probability Options Strategy) S&P 500/SPX Volatility

By Derek Moore

The ZEGA trading team was back at it today entering a new short put spread position for the HiPOS Conservative Strategy. The market on Friday, and then again today, saw a continued short-term pullback that pushed volatility higher. This creates opportunities for new trades as we can find spreads that meet our rules and allow us to get further out of the money on the short leg.

For this iteration, we are utilizing the short 3550 strike within our spread on the S&P 500 Index. At the time we entered the trade, it was sitting about 17% out of the money with an August 13th expiration date. The target profit is 1.1%. Including today, there are 20 trading days for this one.

Above we have our usual HiPOS graph where we outline where the short leg is, expiration date, and purple risk curve. The latter illustrates areas in the lifecycle of the position where the trading team may decide to take a more defensive posture. I always point this out but it is worth repeating. The earlier we are in the trade, the less room the position has to maneuver. Later when more and more time value has been removed from the positions, the more room the market has to oscillate in between our short strike and the current price.

As always we will be giving updates just about every week through expiration. I always mention in the articles what you are rooting for in case you want to follow along. Since we are short-put spreads you’d like the market to move up, sideways or down is alright provided it is not too soon and too sharp a move lower. This is one of the benefits of the strategy in that you do not just rely on the market moving higher to potentially realized your profit target.

Now for the Particulars:

  • Index: S&P 500 Index
  • Position type: Short Put Spread
  • Short put strike: 3550
  • Long put strike: 3500
  • Put Spread Risk (prob. ITM):  < 1% at time of entry
  • Targeted return: ~ 1.1%
  • Put Spread Distance OTM: ~ 17% at time of entry
  • Expiration: August 13th or 20 trading days to expiration