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HiPOS Weekly Update: Counting Down to Expiration Day

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

Time for the Iron Condor to come home to this Friday’s expiration. When you are short volatility it can be a little tough to decide what to root for when the market moves. Go up, go down! For the most part this trade has seen the market sit a little in between the two short strikes.

Given that after Tuesday’s close the market only has 3 more trading days until expiration, the S&P 500 index is sitting below both the short 4275 strike and our normal purple defensive posture curve. While we would never say don’t worry about the short put strike, the pressure being applied on this position is on the call side.

The call is roughly 4.5% out of the money. The short time to expiry means that time decay will quickly eat away any remaining extrinsic premium that is left. If the market should move up sharply between now and Friday, the ZEGA trading team would have a number of options to address that.

We will be back on the blog with any updates and next week upon a successful expiration. One other note on the short volatility front is the VIX Index seeing its lowest levels within the last year. While not quite below its long-term average of about 16, it finally broke below the 20 level and is hovering around the 18 area. A couple observations and thoughts about the next trade setups. Over the past year we’ve been able to find trades that were much shorter in length than normal. The ability to get far enough away while still bringing in the right amount of premium with VIX near 30 is different than an 18 VIX.

As such, at least in the short run, I would expect to have HiPOS conservative trades be more of the 4-week duration variety. While lower than over the past year, the VIX is still elevated which sets up well when analyzing trades that qualify for entry. In other words, I would expect the ability to transition from one trade to another to remain more optimistic.

So, with that we’ll call it good for this week. As always reach out to ZEGA with any questions on this and other strategies.