HiPOS Update: Success at the End of the Journey

HiPOS Conservative Positions Expire at Full Profit

Today our primary conservative HiPOS trade will expire worthless.

That is good news since we’ll realize a full profit on positions. This trade was a little different in that we rolled forward to take advantage of the volatility increasing our profit target while extending the original expiration out as well. With markets coming under pressure and volatility rising, it took some time to realize profits.

While positions came under pressure, the distance between the price of the Nasdaq 100 Index (NDX) and our short put strike remained wider due to higher volatility when trades were placed.

Reviewing Our HiPOS Defensive Posture Graph

Looking at our graph above, you’ll notice that as time went on, price never moved below the purple line.

As we normally point out, as time moves towards expiration the trades benefit from more and more breathing room. Early on in trades unrealized profits can come under pressure, especially when a sharp move lower in the underlying index towards our short strike price happens.

That sloping downward of the curve illustrates the positive benefit of time decay in short volatility positions.

New Position Expectations

While volatility has come down off the highs with this week’s firming of markets, it remains elevated relative to historical averages.

This should allow ZEGA’s traders to put money back to work quickly next week into a new position. Again, the benefit of entering positions when volatility is elevated is the ability to capture a required return while going out further out of the money below (or above) the current market price of the index.

When we do put a new position on, we’ll be sure to update everyone here with a new blog posting.

So, for now, have a nice holiday weekend and we’ll be back Tuesday when markets reopen.