By Derek Moore
After the mid-term election turned out how the pundits predicted it would, the markets rallied big Wednesday and have been selling off yesterday and today. The results have been good news for our current HIPOS positions.
Since we are short a put spread below the market on the Russell 2000 Index, markets moving further away from our short strike helps the overall positioning of the trade. Currently the short leg of the position remains greater than 13% away from the market.
As always, each day that passes results in more time value being extracted from the value or premium left in the spreads. As of today, we only have five more trading sessions until the November 16th expiration date.
Provided the Russell 2000 Index stays roughly where it is currently, your clients will not notice much of a change in the value of the position through expiration day. This is due to how far away out of the money the short leg sits plus the short time remaining until expiration day.
Looking above at the normal HIPOS position graph you can see visually where the market is in relation to not only the expiration day but also the short strike and purple defensive posture line.
Off course if markets shift materially, we will make sure we update everyone. Any time we have a large portion of an unrealized targeted profit early, we get a few questions about whether ZEGA ever closes or rolls a trade early?
The quick answer is only if there is another trade to execute that would provide a benefit to your clients. Our traders are always monitoring not only the current position, but potential new ones as new money is added to HIPOS all the time.
As always feel free to reach out to the ZEGA team with any questions.