HiPOS Weekly Update: Going According to Plan

By Derek Moore

HiPOS Conservative Position Update

With the turn higher in markets our short put spread position is performing well.

You can see in the graph above that the distance between the S&P 500 Index and the short 3200 leg is about 24.5% out of the money. This has reduced the premium significantly in the value of the spreads. As sellers of volatility, we want those to eventually go to zero at expiration.

Speaking of expiration, Feb 3rd has 15 trading days remaining.

What About Closing or Rolling Early?

Since as of the close Thursday about 10 cents remained in value, some asked whether we ever close positions early since a good portion of the targeted return has been made already?

There are times we do that. One thing to keep in mind is that the price to close may differ a bit than the quoted price. There are also situations where if we find a better trade to roll into, it’s possible to roll where we close the existing position and simultaneously sell a new spread further out in time. Those types of things are always being evaluated by the team here at ZEGA.

Given the move in markets, the probability of expiring below the 3200 level is even lower than at entry.

What About Adding a Short Call Spread to Create an Iron Condor?

A quick answer is if a call side trade met our strict criteria for entry, we’d consider adding it to the existing short put spread.

Typically short put spreads yield a higher premium than short call spreads. Often, the put side qualifies when the call side does not. The other thing that starts to get a little tricky is the time left until expiration. As the days pass, the chances of a call side trade qualifying diminish the closer we get to Feb 3rd.

Here the expirations would have to match up.

If we did find an opportunity, we’d share it here on our blog for sure.

What Are You Rooting For?

More of the same.

That, and time to tick by towards expiration. We referenced the far distance between the price of SPX and the short 3200 strike. There is plenty of distance there that even a retracement wouldn’t cause too much concern.

So long as markets don’t abruptly reverse significantly lower.

We’ll be back next week with another update.