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HiPOS Update: The Condor Takes Flight with New Position

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

By Derek Moore

Today ZEGA’s traders found a short put credit spread that joined the existing short call spread in our HiPOS Conservative strategy. As a refresher, when you have both a short call spread and a short put spread on the same underlying index it is referred to as a short iron condor position. Don’t worry about the fancy name, it’s just spreads above and below the market.

For this iteration we’ve utilized the same May 1st expiration date which has 8 trading days left. You’ll notice on our typical graph above the short strike of 2175 which was 20.9% out of the money (below the market) at the time of entry. Long time HiPOS followers might be surprised we were able to sell premium that far away so close to expiration.

This position is further representation of how higher levels of volatility are allowing trades much further away from the index (and closer to expiration) that still qualify under or strict rules for entry. This new entry looks to return an additional 0.9%, the same as the already established short call spread (0.9%) raising the target profit to 1.8% total. You can read the details of the previous call entry here.

So, what do you and your clients want to root for? Essentially you’re looking that the market stays a nice distance away from either strike price. You also want those days to tick off toward expiration resulting in a reduction in time value. Aside from that, any material drop in volatility would also help to reduce the value of the outstanding spread positions. Since we have short spreads on each side of the market, you’ll also notice our dueling purple curve lines. Staying below (calls) and above (puts) would be welcome.

Now for the Particulars

  • Index: S&P 500 Index
  • Position type: Short Vertical Call Spread
  • Short call strike: 3150
  • Long call strike: 3200
  • Short put strike: 2175
  • Long put strike 2125
  • Risk (prob. ITM): <1% at time of entry
  • Targeted total return: 1.80%
  • Call Spread Distance OTM: ~12.5% at time of entry
  • Put Spread Distance OTM: ~ 20.9% at time of entry
  • Expiration: May 1st  or 8 trading days to expiration