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HiPOS Weekly Update: Despite Market HiPOS Doing It’s Thing

By Derek Moore

HiPOS Conservative Update

With the S&P 500 Index (the underlying SPX) moving down Friday paired with an increase of volatility, the HiPOS Conservative moved from an unrealized profit to an unrealized loss.

Even after the pullback, the SPX remained about 10% above the short 4600 strike in the put spread. This is representing the out of the money amount (OTM).

With 16 trading days until the May 3rd expiration has experienced some positive time decay.

While open positions moved against us, HiPOS has held up well even though the underlying market is down from where it was at entry. We’ll talk more later about what you’d like to see happen, but market volatility subsided back lower or a firming in prices would be constructive.

Updating Our HiPOS Graph

Above you’ll see how the price of the SPX Index is above the short 4600 put strike.

You’ll also notice how the market has remained above the purple curved line. That line represents areas should price move below that, ZEGA’s traders may adopt a more defensive posture. The curve moves down and to the right towards the expiration date.

This reflects the positive time decay inherent in being short volatility premium.

It also illustrates how the probabilities of a market going down towards the short put strike area change the closer to expiration we are.

What Are You Rooting For?

More of an up market or sideways for a bit would be helpful.

The market does have room to move lower, but what you don’t want is a sharp move to the downside   with the remaining time left to expiry. A reduction in volatility would be helpful since HiPOS sells volatility premium. You want volatility to be high when you are putting on trades but to dissipate.

Like always time ticking by helps to melt time value.

So, to wrap up, markets are lower than they’ve been but due to time decay and distance OTM thus far the trade is holding up well..

We’ll come back next week with another update.