By Derek Moore
To quote Leslie Nielson in the 80’s comedy The Naked Gun, “Nothing to See Here!”. One day the market rockets up for the best day since June. The next day it trails off late into the close. With this current trade nothing really to report aside from it is going along as scheduled.
With HiPOS Conservative it’s about moving along towards expiration; letting time decay tick off while remaining enough of a distance away from the short strike to cause problems. As of the close Tuesday afternoon, the S&P 500 Index was about 15% above the short 3275 short put strike on our spread.
There are now 8 calendar days left in this edition of the trade. While the distance remains quite comfortable from a historical perspective, the trade is still sitting at less than a 50% unrealized capture from our total profit target.
Volatility remains heightened so spreads are keeping their value longer and further out of the money. So, on this trade let’s focus on what is working. The distance! The distance! The distance! When we look at open positions, we review the current volatility, how far out of the money, and the days to expiration. We are in the closing stretch to expiration, but the higher volatility is embedding extra risk premium in the value of the spread.
We want this to eventually go to zero in value and expire worthless to realize a full profit. For now, you are ok with market fluctuations so long as it doesn’t break too fast and too severe downward. And you want that calendar to tick forward.
We will be back next week to give another update. Separately we will just mention that the HiPOS Aggressive version remains with a short NDX spread that expires on Friday. We’ve been in conversations with our advisors on Aggressive as opposed to frequent updates so if anything changes expect us to reach out directly once again.