HiPOS Weekly Update: So That Happened

By Derek Moore

Well, after what seemed like a volatile few weeks, the markets are just a bit higher than where we were at the entry of our current, but soon expiring primary conservative HiPOS trade. Looking at the graph above, you can see the market never seemed to make any threatening moves towards the position. So, after all that volatility, we are now just about where we were when it started.

The underlying S&P 500 Index was flat despite some outsized intraday sizeable moves. It also stayed well away from the defensive purple line. Prior to this Friday’s expiration, barring any extreme market moves, you shouldn’t expect much movement in the value of the remaining spread positions. As we’ve mentioned prior, the short put spreads tend to have at least a nickel or dime left in value even though they are now far out of the money.

Some readers have asked if the VIX Index is still high enough to find the next HiPOS trade? Rest assured the ZEGA traders are running the numbers as we speak. Well, at least as you're reading this, to see if something qualifies under our strict conditions. Looking at the VIX near the open on Thursday, it remained above 16 and as recently as two days ago was pushing 20.

This is higher than what we’ve been averaging the last couple years, so conditions are favorable to transition to the next spread trade. Another question we’ll address is the idea of whether new clients need to wait a month if they miss the next entry?

Additional assets or accounts come into the separately managed strategy all the time. To answer the question, no they don’t have to wait, as long as the ZEGA team can find a trade that qualifies for entry. How this normally works is let’s say we put on a trade next Monday for the large group of HiPOS Conservative accounts (we call this the primary HiPOS trade) that expires in three or four weeks. Then a week later new money is put to work in HiPOS. Once that account is marked ready our traders will add a trade to that account if it qualifies. It may be joining the existing trade, or it might be a different one with a different expiration.

What normally happens is, over time they end up together with the larger batch of accounts in the primary trade. So even if we announce our next short spread trade, putting new money into the strategy doesn’t mean you have to sit and wait for several weeks.

So, we’ll end this edition here. Of course we’ll be back with any changes or to announce our next position.