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HiPOS Weekly Update: Still A Comfortable Distance for Positions

By Derek Moore

How The HiPOS Conservative Trade Is Going?

After a significant two days of +2.5% gains in the S&P 500 Index, markets have backed off and made a new run at the old bear market low.

At the same time, we only have 5 trading days left until expiration. Due to the time decay in positions, and the underlying market remaining more than 14% out of the money from the short 3100 strike, positions are still showing a slight unrealized profit. This is the benefit of selling premium much further down when volatility was already high on entry.

As we move next week into expiration, assuming no substantial down move, you’ll still expect the position to still have premium due to the elevated volatility.

Visiting Our HiPOS Graph

Above we can see once again price dropping off but remaining above the curved purple line.

We always point out that the closer we get to expiration, the more room to breathe the underlying asset must move as it slopes down and to the right. This is also a good example of moves lower against the short put spread happening later in the trade having less impact than early on in trades. I mentioned the distance remaining between the market and the short 3100 strike price, but it is worth noting there is still a healthy gap there.

So far even though the market moved in the opposite direction to you want, the nature of not having to be right in direction and still potentially realizing profits is a benefit of HiPOS.

What Are You Rooting For?

Ideally, markets firm out and either trend sideways or move higher to increase the distance out of the money.

This will also allow the remaining time decay to kick in as the week moves on. Oh yeah, you want to simply get to next Friday and look for a positive expiration where the value is zero on the position. This position still has some time left, but the continued elevated volatility does help ZEGA’s traders find HIPOS trades that qualify under our strict rules for entry.

With that we’ll just wish every a good weekend and as always reach out to ZEGA with any questions.