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HIPOS Update: New Trade Today

By Derek Moore

Late yesterday the ZEGA trading team found a HiPOS trade that qualified under our rules for entry. For this trade we used a short-put spread to generate premium on the underlying S&P 500 Index. 

Using the 2425 short strike, the distance out of the money from Tuesday’s close is about 13% away. Expiration is Friday March 29th. This represents 20 trading days and easy enough to compute 29 calendar days. Remember, even on weekends and holidays, options premiums can enjoy time decay.

For this position we have a targeted return goal of 1% in premium. You might have noticed that this position has more time until expiration and a further distance out of the money. This is due to the current volatility regime which in large part dictates our targeted return, days to expiration, and distance out of the money.

For a trade to qualify it has to meet several thresholds for us to even consider it worthy.   Above  you’ll notice our typical graph which shows the expiration date via the dotted line. It also shows where the short-put strike level is as well as the purple defensive posture line.

For those new to HIPOS, this is a level at which ZEGA’s traders may take a more defensive posture should the market move against our position. As always, the further a trade gets towards expiration, the more room it has to maneuver. 

  • Index: S&P 500 Index
  • Position type: Short Vertical      Put Spread
  • Short strike: 2425
  • Long strike: 2375
  • Risk (prob. ITM): <1% at      time of entry
  • Targeted return: 1.00%
  • Distance OTM: 13% at time of      entry
  • Expiration: March 29th      2019 or 28 calendar days to expiration at time of entry