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HiPOS Weekly Update: Tactical Rolling Amid Volatility

By Derek Moore

As the markets closed today (Friday March 6th) we now mark two weeks of high volatility and high realized volatility. This week alone we’ve witnessed historic multiple 1000-point days up and down in the Dow Jones Index.

Today’s post will follow up on Jay’s  video updates from February 28th  and  March 2nd. As Jay mentioned we are managing through this environment on our primary HiPOS strategy where we initially moved from the March 6th expiration to the March 13th expiration for a small credit.  If you haven’t already you can get the full rundown from the videos but today, I wanted to update everyone on our continued management of the position.

Jay had mentioned that we rolled forward to the March 13th expiration which gave us more time but also put us in a better position should another roll be required. Today we took additional steps with the position by rolling out to the March 20th expiration to give it an additional week. We also pulled up the strikes 10 points which allowed for another small credit we received to roll the trade. While we go from the March 13th expiration to the March 20th expiration, a nuance in when the contract settles mean we only added 4 full trading days.

There are option contracts available every week on the S&P 500 index. Most expire at the end of the day on whatever day that is. The March 20th is considered the regular monthly contract and as such expires or settles the final price on the open that Friday.

While we don’t implement changes to the strategy due to market calls or predictions, I thought I would share a few observations on the S&P 500 Index. As you can see from the chart above, the market in the near term has held both the lows put in Monday as well as the lows from last October. You can see the red line draw under those on the bottom of the chart. It also held the closing price from that Monday.

All things considered, the market was up a bit from Monday’s close despite several days of record 1000-point swings in the Dow Jones Index both to the upside and downside. While the market is off now over 14% from the highs just 2 ½ weeks ago, with HiPOS we don’t need the market to recover to old highs in order to realize back unrealized losses in the trade.

If the market holds these levels and begins to get into a more regular patter of sideways to up as volatility comes out of the market the prices in the spreads will start to come out rapidly. When we rolled forward, we’ve essentially closed out twice the position at a loss, but as we rolled forward but immediately took in the same amount plus a small credit for the new position.

Jay is planning to release another video update sometime Monday, but we wanted to send a quick note out to keep everyone informed on HiPOS.