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HiPOS Trade Update: Back at It with The Volatility Bump Thumbnail

HiPOS Trade Update: Back at It with The Volatility Bump

Hedging HiPOS (High Probability Options Strategy) Interest Rates Option Trading S&P 500/SPX Technical Analysis VIX Volatility

By Derek Moore

New HiPOS Conservative Trade

Today, after Friday’s successful full realized profit on the previous trade, we are back at it selling an April 25th expiration about 13% out-of-the-money. 

That is the distance between where the S&P 500 Index (SPX) is and the short strike. The target profit on this one is 1% and the short strike in the put spread is the 5000 strike. 21 trading days fall between today and expiration date. Often HiPOS entries happen when we see a shorter-term uptick in volatility. Speaking of volatility, the VIX Index, which is a good proxy, has been coming back in lately as markets have seemed to consolidate around these levels. 

Today implied volatility moved higher which we like during a HiPOS entry. 

Reviewing the HiPOS Graph

Above is our normal graph which illustrates the price chart of the SPX and information to help frame the current trade.

It includes:

  • Papaya dotted line illustrating the short 5000 spread leg
  • Expiration Date shown by the vertical dotted blue line
  • The ZEGA Risk Curve shown in pink

The distance between the current SPX price and the short 5000 level at entry was around 13%. This is the out of the money distance.

As a refresher, the ZEGA Risk Curve illustrates areas between now and expiration where if the market declines below the line, we may take additional defensive measures to further manage risk.

What Are You Rooting For?

Any time we have a new trade, early on you’d like the price to stabilize a bit or move higher.

Then as each day passes, time decay does its thing and starts to erode from the value of the options. The good thing with HiPOS is that each trade has the potential to be profitable even if the market moves lower after entry as happened with the most recent one. As long as markets don’t fall too far too fast, which would threaten the position. 

So, you want market to ideally go sideways or up, time to tick by, and volatility to recede.

We’ll be back next week with another update but to learn more about the risks and benefits of HiPOS check out the HiPOS product page on our website here: https://zegainvestments.com/products/hipos

Now for the Particulars: 

  • Index: S&P 500 Index
  • Short Credit Spread
  • Short put strike: 5000
  • Long put strike: 4950
  • Put Spread Risk (prob. ITM): <1% at time of entry
  • Targeted total return: ~1% 
  • Distance Put Strike OTM: ~13% at time of entry
  • Expiration: April 25th, or 21 trading days until expiration