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HiPOS Weekly Update: Expiration Week Is Here!

By Derek Moore

As expiration Friday arrives this week, we thought we’d put out a quick HiPOS update. As you can see by the graph above, while the market sold off on a gap down Monday, due to where we are in the lifecycle of the trade, the price of the S&P 500 Index is still well above both the purple defensive posture curve as well as the short 2880 strike.

This is a good example of the benefits of time decay as the longer a trade is in place and the closer it gets to expiration day, the more room it has to move around. Friday’s expiration is a “weekly” versus a regular expiration, therefore the final index values will not be set until the close of trading.

This is different from the once a month “monthly” expirations (third Friday of the month) where trading ceases on Thursday afternoon and then goes through an opening rotation on Friday morning to determine the final settlement index price. The reality is that the market has option expirations each week which was a result of the continued increase in the use of options by institutions and retail investors.

Some have noted that volatility as measured by the VIX Index went above the 20 level this morning. A natural question is what would this mean for a future HiPOS Conservative trade? Well, the short version is that heightened volatility makes it more likely that if this trade expires Friday, ZEGA’s traders can find a new trade rather quickly.

Don’t worry, we’ll be back with an update should any changes or new positions happen. Until then a reminder that ZEGA will have a presence at the upcoming TD Ameritrade LINC Advisor Conference. If you plan on attending make sure to reach out and let us know.