HiPOS Weekly Update: The Final Count and What’s Ahead?

By Derek Moore

HiPOS Conservative Trade Update

After the close of Thursday only 6 trading days remained until the September 27th expiration date.

The S&P 500 (SPX) Index broke out today to a new all-time high in a post Fed 50 BPS cut reaction. The SPX close of 5713 sits about 17% above, or out-of-the-money, the short 4900 put leg in the current credit spread. Most of the profit has been on an unrealized basis been made in the trade.

So long as the market doesn’t make a very sharp reversal lower, in this final week you shouldn’t expect much change in the value of the position prior to expiration.

Above you can see how far above the 4900-level indicated by the dotted horizonal papaya line and the last trade on the SPX.

Also well positioned above the ZEGA risk curve.

Rather than breaking down into separate sections like we normally do, safe to say you are just rooting for no extreme moves lower in this final week. Instead, we’ll answer some questions we’ve been getting given where the market is.

Would You Roll the HiPOS Trade Early into a New Position?

Really, it’s the question of since most of the profit has been made (on an unrealized basis as nothing is final until it is), would you close it out early and why or why not?

While the remaining value of the spread is low, there is still some remaining value and if we were to close it out early, it would eat into the potential profit. As the trade stands now, there is a very high probability of the rest of that credit being realized at expiration. Put another way, we can’t get out of the trade for nothing.

The other aspect is whether there is a compelling trade to go to early, or one that meets all our rules and is enough of a benefit to foregoing whatever remaining profit that can be still earned.

While we don’t divulge our parameters and rules for entry, we didn’t believe there was a compelling enough trade that warranted closing out our existing one early.

That may change, but that is the quick answer.

Will The Next Trade Likely Be on the Call Side or Put Side?

We normally say that each time the trading team is running the calculus on our rules for entry, credit spreads on both the call and put side are evaluated.

The call side also has some additional parameters we look at around all-time highs that may or may not come into play. The resulting position will be what the team feels is the best reward vs risk for you and your clients. Often the put side qualifies while the call side does not. Long time followers of HiPOS are used to put spreads being established more often than the call side.

If we make any adjustments or once a new trade is put on, we’ll come back with an update.

For more information on the HiPOS strategy including presentations, fact sheets, and benefits and risks check out the products section of our website https://zegainvestments.com/products/hipos