HiPOS Weekly Update: The Move We Wanted

By Derek Moore

HiPOS Conservative: Where Things Stand

As we continue towards the June 23rd expiration day, the S&P 500 Index (the underlying index) has continued marching higher.

This is exactly what you wanted as the further the market is above the short 3350 strike, the lower the probability of it getting below that level. Plus, you’re getting positive time decay as the calendar ticks by. We have mentioned volatility changes as another big factor.

Since the position was established, implied volatility has shrunk.

This means that the value of premiums due to the expected movement of markets has also shrunk.

As sellers of volatility premium, we want to take in a credit and then have the value of the spreads eventually expire worthless at zero. Lower volatility, more time decay, and a market that is moving in the right direction all create a wind at the sails so to speak.

All good stuff right now.

Checking in With Our HiPOS Graph

Above you can see that distance widens not only between the current S&P 500 price, but between price and the purple curved line.

You want price to remain above both and the more time ticks by, you see that line dip down and to the right. After the close on Thursday, the distance out-of-the-money (S&P Price minus strike price) was about 28%. That is a healthy amount after markets continue to run higher.

After today, there are only 10 trading days left.

What Are You Rooting For?

Really, just don’t make any significant turns lower.

While most of you have other long market strategies, you’d like the S&P to break above the overhead 4300 resistance. For HiPOS conservative specifically, that shouldn’t matter too much. Up, sideways, or moderately down works.

That and tick off the calendar days.

Uneventful updates are just how we like it so with that, we’ll call it a day for this week.

As always reach out to a ZEGA member with questions.