HiPOS Weekly Update: Market Playing Nice with HiPOS

By: Derek Moore

HiPOS Conservative Trade Update

The S&P 500 Index (SPX) made yet another new all-time high today.

I think that was the opening line from last week’s article as well. It currently sits 16% above the short 5100 put leg in our spread. That is how far out-of-the-money (OTM) it is. We now only have 11 trading days until expiration including Friday’s session. 

Because of the run up in the market and the march forward in the calendar, the value of the spread has dropped, which is what we want.

Reviewing The HiPOS Graph

The ZEGA Risk Curve is shown in pink.

As the market has continued to rise after entry, it has moved further and further away from the ZEGA Risk curve. Since the curve moves down and to the right as we get closer to expiration date, this too is a positive development. 

The short 5100 strike is outlined by the dotted papaya line, expiration date of December 20th is the vertical blue dotted line, and the candlestick chart of the SPX.

The market is a comfortable distance away from the 5100 level.

What Are You Rooting For?

We asked for more all-time highs and the market delivered!

Since the distance between the SPX and the 5100 short put strike level is wide, the market has a good amount of breathing room meaning even if it turns lower, that may be fine. The market doesn’t need to go up for a HiPOS trade to realize a profit, it just must not go down by too much. What you don’t want is a move sharply lower towards that strike price area.

You do want the calendar to continue to tick by to realize more and more of that time decay.  

Volatility has also dropped, which lessens the premium component derived from ‘implied volatility’ and helps the value of the spread move lower. Eventually we want the value to drop to zero at expiration.

A few people have asked whether we’d again roll the trade early to capture more premium. As of this writing, this hasn’t been an option as there isn’t anything worth rolling to. We’ll be monitoring things on our end so if that opportunity presents itself we’ll be ready.

We’ll leave it there, but I’d encourage you to click on the link below to check out more information and presentations on HiPOS including the risks and benefits. https://zegainvestments.com/products/hipos