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Fundamentals
Realistic Strategies, Realistic Returns

Cabot Options Institute – Fundamentals Issue: December 12, 2022

Click here to register for the subscriber-exclusive event this Tuesday, December 13 at noon Eastern Time (ET).

We have some exciting times ahead as our Dogs and Small Dogs portfolios will be coming on board at the beginning of 2023. I will be discussing the details of the approach, strategy, positions and potential trades in our subscriber-only webinar tomorrow so you will not want to miss the event. If you do happen to miss, no worries, if you sign up at least you can immediately receive the recording once it’s available.

As for our current portfolios, there really isn’t too much to report at the moment. Our passive portfolios continue to impress in the midst of a challenging market which displays the overall power of the passive approach. And I continue to mostly sit on the sidelines in our active portfolios, although “hopefully” that approach will be changing soon. I intend to add several new positions to the active portfolios as we enter 2023, but as always, I will not force the issue.

For the year, the S&P 500 (SPY) is down 17.5%, while the tech-heavy Nasdaq 100 (QQQ) and the Dow Jones industrial (DIA) indexes are lower by 29.7% and 7.9 %, respectively.

Not much has changed in the last three months from a price perspective. Just three expiration cycles ago, SPY was trading for over 385; now it trades for 393. Yet, volatility continues to maintain a stark presence in the market’s day-to-day trading.

So, I will repeat my stance yet again. I expect to see a continuation of volatility going forward. I would like to say that most of the weakness is behind us, but unfortunately I don’t have a crystal ball. I do expect the market to rally, particularly if geopolitical conditions or inflation data improve. How long that rally lasts, well, no one truly knows. I’ve read thoughts on where the market is headed from both camps, bullish and bearish. And the opinions are strong.

But as I continue to state, during times of market extremes, I’ve learned to take a more cautious approach. Keep some cash on the sidelines. It’s why I haven’t jumped headfirst into adding new positions to the active portfolios.

We have the opportunity of a lifetime ahead of us, and there is no rush in trying to call a bottom. We will take on new positions when it makes the most sense and we might have a slightly different approach in a few of our new positions—possibly extending our deltas a bit by buying two LEAPS for every call sold or some other variations. I’ll discuss this approach and others in our webinar on Tuesday.

I will repeat: Trading is about patience. It’s not about the number of trades you place during a given timeframe. It’s about the quality of trades and understanding there is an ebb and flow to trading frequency.

My intent is to slowly build out our active portfolios while, of course, continuing to manage our passive portfolios.

My apologies for the ongoing repetitiveness. The market continues to experience lots of challenges. At the moment, there really isn’t much to do but continue to sell call premium on a mechanical basis. Our approach so far has proven viable, at least when it comes to our passive portfolios. The active portfolios rely a bit more on timing which is why I continue to take my time ramping up positions.

Remember, patience pays.

As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

Current Positions

Click here to access the “Portfolios” section to view each portfolio’s respective positions.

Portfolio Discussion

All-Weather Portfolio

After being down roughly 8% just two expirations ago, the All-Weather portfolio is now up 0.72% since it was initiated back on June 3. The overall market is down 5.1% over the same time.

Even with the paltry gains, I continue to be incredibly pleased with the performance of the portfolio so far as it continues to outperform its benchmark index on the upside and downside and if all goes well, should make big strides over the next few expiration cycles.

As I’ve said over and over, the historic volatility that has impacted the market hasn’t put a huge dent in our All-Weather portfolio. And that should give us all great confidence about how this portfolio will perform in good times and bad going forward.

We have several trades to make this week including rolling DBC, IEF, VTI and GLD. I will be placing these during the early part of the week. Expect to see all new positions by Wednesday.

Yale Endowment Portfolio

Just like our All-Weather portfolio, the Yale Endowment portfolio is flat, at +0.07%, while the overall market is down 5.1% over the same time frame.

As I’ve stated numerous times, I continue to be pleased with the performance of our Yale Endowment portfolio. Both portfolios have proven to outperform their respective benchmarks on both the upside and downside. And remember, this is during one of the most volatile periods we’ve seen in the market.

We have several trades to place this week in the portfolio. At minimum, I will be rolling SPY, EEM and VNQ as they all have calls that are due to expire this week. There is a good chance that I will also roll EFA and even TIP before the week ends. I expect to make all of these trades over the next two days.

Dogs (and Small Dogs) of the Dow

No positions at the moment. I will be adding at the onset of 2023.

Warren Buffett’s Patient Investor Portfolio

I’ve decided to keep our positions to a minimum due to the ongoing volatility in the market. At the moment, we only have one position (AAPL) but intend to add several more in the coming weeks.

As I have stated in our last few issues, I will be building out the portfolio to a minimum of five positions over the coming two expiration cycles, and remember, because this is an active portfolio, we will be rebalancing every month around expiration.

James O’Shaughnessy’s Growth/Value Portfolio

Like the Patient Investor portfolio, my Sentiment portfolio continues to be cautious. We added CVX to the portfolio back in mid-August and it remains the lone stock in the portfolio. Our position is up almost 30% while the stock alone is up only 7% over the same time.

And like our Patient Investor portfolio, I will be rebalancing every month around expiration. This simply means that we could have a position for just one expiration or, at least in theory, in perpetuity.

Next Live Analyst Briefing with Q&A

Our next Live Analyst Briefing with Q&A is scheduled for tomorrow, December 13, 2022, at 12 p.m. ET, where we will be discussing the options market, giving a detailed look at open positions, strategies used, and will have a follow-up with live questions and answers. Register here.


The next Cabot Options Institute – Fundamentals issue will be published on January 17, 2023.

Andy Crowder is a professional options trader, researcher and Chief Analyst of Cabot Options Institute. Formerly with Oppenheimer & Co. in New York, Andy has leveraged his investment experience to develop his statistically based options trading strategy which applies probability theory to option valuations in order to execute risk-controlled trades. This proprietary strategy has been refined through two decades of research and real-world experience and has been featured in the Wall Street Journal, Seeking Alpha, and numerous other financial publications. Andy has helped thousands of option traders learn and implement his meticulous rules-driven options trading strategies through highly attended conferences, one-on-one coaching, webinars, and his work as a financial columnist. He currently resides in Bolton Valley, Vermont and when he’s not trading, teaching and writing about options, he enjoys spending time with his wife and two daughters, backcountry skiing, biking, running and enjoying all things outdoors.