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HiPOS Weekly Update: Everything Is????

By Derek Moore

So, I have been waiting for many years to quote The Lego Movie song “Everything Is Awesome”. If you do not have children, let me translate. It is a song in an animated movie about Legos. If you do have children of a certain age, you probably will be mad at me after reading this as you won’t get the song out of your head….again!

To be clear, this isn’t me calling this trade in the bag. Rather, I always mention within these articles what you are rooting for within the positions. Being short put spreads you want the underlying S&P 500 Index to move higher, away from the short strike. As of the close Wednesday, our positions were sitting about 16.2% out of the money so what you wanted has happened.

You also are rooting for time to pass so time decay of the premium kicks in. There are now only 5trading days left until expiration on Friday, July 9th. This accounts for Monday’s market holiday for July 4th. Well, we are a week later and as we always reference, the purple defensive posture line now has fallen more down and to the right. So put a checkmark next to time decay.

So what to expect in the coming week. You shouldn’t expect much movement in the remaining value of the short spread position. So long as there is not a sharp unexpected move downward towards the short strike. Some advisors have asked in the past whether we consider closing or rolling positions early that have already captured the majority, albeit unrealized, of their profit target?

We do look at that and in general, there are several factors. The quick answer is there has to be something to roll to commensurate with our entry rules. The other factor is that even though there is not much value left in the spreads, buying it to close would cost money and thus reduce the gross profit targets we set at entry.

If the ZEGA trading team makes any adjustments we will be back on the blog with updates. Until next week enjoy the holiday!