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HiPOS Update: Right in The Sweet Spot at Expiration

By Derek Moore

HiPOS Conservative Expiration Day Update

Today our primary HiPOS Conservative trade will expire worthless for a full profit.

Since this was an Iron Condor trade, in a perfect world you wind up right down the middle between the short call strike and the short put strike. Well, at midday, we were 14.2% from the call side and 15.4% above the put side. The benefit of adding that short call leg (to existing short put spread) was increasing the total profit without taking additional risk.

As this is expiration day, ZEGA’s trading team is already eyeing potential new positions for entry next week.

Volatility Stays Elevated Meaning More Opportunity

Without sounding like a broken record (does anyone even remember these?), with continued higher volatility levels finding new trades that qualify under ZEGA’s strict rules are easier to find.

Long time users of HiPOS might remember 2017 where the spot VIX Index was trending towards single digits and upon expiration it might take a week or more to find the next positions. Well, in this environment we’ve been able to stack trades one after another.

The timing is the timing, but I will note that recently markets have turned lower with short-term increases in volatility right around expiration times leading to better entries on the next positions.

Reminder of Why HiPOS

The fact that HiPOS offered the opportunity to generate returns despite markets moving lower is a good reminder of the potential non-correlation to equity and fixed income markets.

Of course, there is a risk with the strategy that we outline should markets move too far or too fast. Yet, when selling premium, we want to take advantage of time decay. We want to arbitrage the normal tendency of markets to overprice future volatility above what realized volatility will wind up being.

We will be back next week with further updates when the team keys in on new positions.