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HiPOS Weekly Update: Expiration Day

Hedging HiPOS (High Probability Options Strategy) Interest Rates Option Trading S&P 500/SPX Technical Analysis VIX Volatility

By Derek Moore

HiPOS Conservative Trade Update

The current HiPOS conservative trade is poised to expire worthless (what we want) which would represent a successful expiration.

Initially this trade was a position we rolled to after exiting the prior trade at a small loss to manage risk based on our rules. The target profit from this one was about 1.5%. While outsized moves are always a possibility, at the close of trading Thursday, the S&P 500 Index was over 22% above the short put leg of 4550 which is quite a bit of distance out-of-the-money (OTM).

ZEGA’s traders are already running the numbers across the volatility landscape for the next trades.

HiPOS Graph

Above we see our typical HiPOS graph.

We’ll leave the commentary here brief considering expiration day is today. One thing to note is that the market never pressed lower considerably towards the short 4550 strike outlined with the blue horizontal dotted line. It also hasn’t threatened the ZEGA risk curve by staying nicely above it.

The S&P 500 Index price candle is now right up against the August 23rd expiration line as this chart was taken at the end of trading on Thursday.

What Are You Rooting For?

Given this trade looks to be scheduled to expire worthless for a full profit based on where the market is, it may be worth thinking ahead to the next trade.

Ideally you want implied volatility to remain high or to spike higher. The reason being that with higher IV levels, it is possible to:

  • Find trades that qualify under our strict rules for entry
  • Get the required premium but at further out of the money strikes

We often are asked whether the next trade will be a call spread or put spread.

ZEGA’s traders look at and evaluate both to see which, if any, meet our rules. Often it is the put side that qualifies and allows the requisite amount of premium commensurate with the risk.

To learn more about the benefits and risks of HiPOS you can check out the strategy presentation and information here: https://zegainvestments.com/products/hipos