HiPOS Weekly Update: Holding Up Well Despite Downturn

By Derek Moore

March 7, 2023

Status of Current HiPOS Conservative Trade

HiPOS is a strategy that is not dependent on the market simply moving higher to realize gains.

Back in February we entered the short put spread position while the market was trading north of 4000. Since then we’ve been up and down but not enough that caused positions to come under pressure. We still have 10 days (and 8 trading days) until expiration but as of the close Tuesday, the short 3400 put strike remains about 14.5% below the market.

Otherwise referred to as the amount “out of the money”.

Currently you’ll see the HiPOS conservative trade has unrealized gains.

This is due to the passage of time and positive time decay. It also is due to the market being relatively around the same spot as when the trade was entered. One of the ways you can see this unfold is by looking at our normal HiPOS graph above.

Notice how as you move from entry to expiration, the purple curved line trends down and to the right. This is the area where if price moves lower, ZEGA’s traders may take a more defensive posture. As the trade moves along price gets more breathing room.

The remaining probabilities and time decay are reflected in where that line falls.

What to Expect Going Forward?

Due to the distance currently out of the money, the S&P 500 Index (the underlying) can move up, sideways, or down.

So long as it doesn’t move sharply lower. Time is on our side as the remaining time value starts to seep out of the position. None of us wants to get older, but when you are watching a HiPOS trade, you want time to tick by.

Purely coincidence, but expiration day happens to fall on March 17th St. Patrick’s Day.

So will we have the luck of the Irish?

While HiPOS is a long-term systematic way of selling volatility to generate monthly returns, we’ll take it!