ZEGA's HiPOS Weekly Update & Yahoo Finance Appearance

Time Decay Driving Unrealized Profits

Last week we noted that the S&P 500 Index was sitting about 4.2% below the 4900 short call strike and 15.4% above the short 3975 put strike.

Well, with an hour left in the pre-Thanksgiving Day close, the S&P 500 Index virtually hasn’t moved. Since the last update we increased the out of the money distance by a tiny margin going to 4.3% or 0.1% further. Despite little movement in the underlying, the value of the spread has reduced increasing unrealized profits in accounts.

The change was driven by more time ticking by and getting down to only 5 ½ trading days left until expiration.

What You Are Rooting for in HiPOS Conservative

While time decay resulted in positive effects to price, we can’t discount the drop in implied volatility.

As volatility has come off its recent highs, this has reduced pressure further on option premiums. At this point though, besides getting to expiration day, you are rooting for the market to hang around where it is. And hey, a little down move would be welcome to expand the distance further away from that short call strike.

With the holiday, half day Friday, and the weekend upcoming, plenty of time decay upcoming so the S&P 500 cooperating would suit us just fine.

Jay Pestrichelli Appears on Yahoo Finance to Discuss the Markets and Volatility

We’ve mentioned several times HiPOS does not depend on markets going up to potentially capture profits.

That said, we are students of the markets and of course we run our primary hedged equity strategies.   Jay pointed out on an appearance with Yahoo Finance that interest rates have put pressure on the tech heavy Nasdaq 100 Index. He also pointed out that we like US market via the S&P 500 Index as opposed to emerging markets where dollar denominated bonds in a rising rate environment pose special risks.  If you’re using HIPOS as an alternative asset on a slice of your portfolio, we like staying in the market but being hedged versus trying to time the ups and downs.  

Finally we hope everyone had a Happy Thanksgiving! We will be back next week with an expiration week update.