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HiPOS Weekly Update: Downtrend but Fine So Far

By Derek Moore

Where The HiPOS Conservative Strategy Positions Stand

We touch on it all the time how HiPOS can potentially realize profits in up, down, or sideways markets.

We also make the point that it is true provided markets don’t move too far too fast against our short strike prices in the credit spread positions. So far even though we’ve had a downtrend, it has been rather pedestrian where time decay eroding in our favor has muted the negative effects of the market.

After the market closes today, there will only be 7 trading days left until expiration.

Time decay is a major positive for short premium sellers.

Reviewing Our HiPOS Graph Above

Continuing the point of an orderly downturn, we can see that the S&P 500 Index has remained above the purple curved line.

As time passes, that purple line will move down and to the right illustrating the benefits of time decay and shrinking probabilities for a market to reach the short 3975 strike area. That line represents areas where should the market price close below it, our traders may take a more defensive posture. The more the trade moves along, the more room to breathe the underlying (S&P 500) has.

The other thing to point out is the distance between the current market and the short put strike leg.

As of this writing, it was about 9.5% out-of-the-money.

What are you Rooting For?

Expiration day, plain and simple.

With only a short amount of time left, you want the remaining time premium to come out of the value of the spreads. As sellers of premium, we take in a credit and then want it to eventually expire worthless at zero. So, keep trucking along until August 31st.

At the same time, a continued and orderly downtrend is fine, but ideally, you’d feel better if the market firmed up and went sideways (or up) for a bit.