By Derek Moore
Above picture source: Yahoo Finance
Last week we saw our previous primary HiPOS conservative trade expire worthless. Worthless in price, but for your clients it represented a full profit over the 2 weeks. While the markets sold off a bit post Fed decision and the Presidents latest comments on tariffs and China, the underlying markets never got close enough to the short leg of the spread to pose any issues.
Prior to the last trade in HiPOS we noted that your clients would be in cash for a bit as ZEGA’s traders waited for a new position that met all our strict criteria for entry. We also noted that typically for the short put side of the strategy, the market would need to see some increased short-term volatility increase thus increasing potential premiums.
As we can see from the chart above of the VIX Index, today’s market has led to a spike in implied volatility. This most likely will lead to a new position that qualifies under our rules. The ZEGA trading team will continue to work through the calculus behind our strategy as the week progresses.
As of late afternoon Monday, the S&P 500 Index was off more than 3% which represented a larger move than we have seen for some time. One of the hallmarks of the HiPOS strategy is patience and discipline which we will continue to exercise.