HiPOS Weekly Update: Expiration Week Special

By Derek Moore

HiPOS Conservative Strategy Update

With only a few days left until expiration day, you most likely won’t see much movement in the value of your accounts. 

We sell premium to generate income and then you want the value of the positions to erode to zero eventually. That’s just about where they are. The process from here on out is once Friday comes and goes, over the weekend you’ll see in transactions a “removed due to expiration” notation and then nothing will show in positions.

I’ll mention that based on where the underlying S&P 500 Index is trading, the short leg of the put spread is about 12% out-of-the-money, so a comfortable distance.

This is what you want in a HiPOS trade. 

Reviewing the HiPOS Graph

Always a good time to go over our normal HiPOS graph.

You can see during the lifespan of this trade, the market materially never threatened (thus far) remaining above both the short 3850 strike price and the purple curved line. This line represents areas should price fall below ZEGA’s traders may take a more defensive posture.  

The vertical dotted line represents Friday’s October 20th expiration. 

What Are You Rooting For?

Just for the S&P 500 to not make a significant downward move.

Up, down, or sideways all works with the caveat above. That and have Friday come and go. Sometimes we get questions on whether we ever close out early. The answer is yes if there is a benefit for your clients and there is something to roll in to. Volatility has been on the higher side of late which will help getting into the next trade. 

It’s worth noting that even though the positions have little if any value left, to trade out of them would still be a cost that we factor into any decision. 

So, we’ll keep this update short as expiration is coming but we’ll be back next week with any new trade announcements.