HiPOS Weekly Update: Lower Volatility and Time Decay Benefits

By Derek Moore

State of Current HiPOS Conservative Trade

Instead of a State of the Union, I’ll call this the State of HiPOS.

And so far, so good! When we entered the position by selling a short put spread, volatility was higher. Fast forward and markets have moved higher with the VIX Index now going below the 20 level as volatility has tapered off.  Then there is the passage of time which eats away at the time premium contained in the price of the positions.

After the close Thursday, only 10 trading days remain until the April 14th expiration date.

Reviewing Our HiPOS Graph

You can see how the gap has opened up between price and the 3200 level.

This means there is more distance, about 21%, between its price and the short 3200 strike in our put spread. This is the amount “out of the money”. Price is another major input that has moved favorably thus far. We always point out the curved purple line and today you see how price is now well above that as well.

If price closes below that line once we are in a trade, we may take a more defensive posture.

Do You Ever Close Out Positions Early?

One question we do get sometimes is whether we may close or roll positions early given the current unrealized profit?

The quick answer is only if there was something better to roll to that would benefit your clients. While the remaining premium may not seem like a lot, it would still cost money to exit and would reduce the overall target profit for this trade.

Given the time remaining in the position and the drop in volatility, it is unlikely.

Anytime we do adjust we would be sure to update everyone via our blog.

What Are You Rooting For?

Simple, more of the same.

The markets to meander or go higher. They can even go lower with no issues provided they don’t sharply reverse lower. You also want time to continue to tick by as every day that passes reduces the probabilities of a market threatening the short put spread.

Later in trades the market does have more room to oscillate as explained in our discussion on the purple curved line in the graph above.

So, with that we’ll leave it there but next week we’ll check in again with another HiPOS update.