The close of the June expiration, back on the 17th, was witness to the low set in 2022. The SPDR S&P 500 ETF (SPY) hit an intraday low of 362.17 before rallying to close the expiration cycle at 365.86.

Since then, the market stalwart ETF has rallied 6.2%.

To put things into perspective, SPY was trading for over 410 when we first established positions back on June 3 before losing roughly 11% into the close of the June expiration cycle.

Thankfully, the bulls stepped back into the fray when the July expiration cycle began, prompting the 6% rally.

Cabot Options Institute – Fundamentals Issue: July 11, 2022

Since then, the market stalwart ETF has rallied 6.2%.

To put things into perspective, SPY was trading for over 410 when we first established positions back on June 3 before losing roughly 11% into the close of the June expiration cycle.

Thankfully, the bulls stepped back into the fray when the July expiration cycle began, prompting the 6% rally.

For the year the S&P 500 (SPY) is down 18.2%, while the tech-heavy Nasdaq 100 (QQQ) and small-cap Russell 2000 (IWM) indexes are lower by 25.6% and 23.6%, respectively.

Volatility continues to define the market in 2022, and until fears subside on a potential recession, rising inflation and ongoing geopolitical turmoil, I don’t expect much to change.

Four of the last five weeks have seen a swing of 5% or more, which is historic. Couple that historically volatile stretch with this recent statistic from analyst Jason Goepfert of Sundial Capital Research: “Over the past 50 sessions, the S&P 500 has suffered a 2% or larger intraday loss 15 times. That ranks among the largest clusters of heavy intraday selling pressure since 1962.” That tells you just how extreme volatility has been over the past few months.

Of course, we remain early in the life of our portfolios. But given that our two passive portfolios just experienced one of the most volatile stretches in market history without the same volatility as the overall market, it shows the strength of not only our two tried-and-true passive portfolio approaches, but also the poor man’s covered call strategy.

Needless to say, the last five weeks have been a doozy. During times of market extremes, I’ve learned to take a more cautious approach, particularly with our “active” portfolios. Trading is about patience. It’s certainly not about the number of trades you place during a given timeframe. It’s about the quality of trades, understanding there is an ebb and flow to trading frequency. We still have a lot of trades to place as we begin to build out each one of our Fundamentals portfolios.

My intent is to slowly start building out our active portfolios while of course continuing to manage our passive portfolios. With July expiration coming this Friday we have a few positions in our All-Weather portfolio that we will need to buy back the short calls and sell more premium (through more short calls) going out to the August, if not September, expiration cycles.

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.

Options Education

Today, I want to go over a question that is asked quite often and one that I will cover briefly here and in a more detailed format during our live webinar tomorrow. It’s, “I’m new to the service, what should I do if I want to get into an established position?” I hope the following helps to clear up these types of questions.

Question: I have a quick question. I went in and set up a trade in a GLD LEAPS contract, as you outlined a few weeks ago. I take it I can still do that even though several weeks have passed. But when I tried to set up a short call in GLD, I noticed that the premium available is a fraction of the $1.00 that you listed when you came out with this recommendation. With a time lapse of several weeks since you made this recommendation, it appears that I should stay away from both the LEAPS order (it hasn’t been executed yet) and the short call order. Am I looking at this the right way? If so, should I instead be looking at a recommendation that is newer? If so, which trade in the “All Weather” portfolio (or any of the portfolios, for that matter) would you say is still fresh enough to take action on?

Answer: As far as getting into positions, it is ultimately up to you to decide what works best. The two portfolios that have ramped up are passive portfolios so the holdings will remain the same. Moreover, the LEAPS will stay the same, at least for the next the 6-8 months. The only thing that changes is the short call as I only go out 30-60 days (and will adjust from time to time). That being said, you can enter the positions as is or use the mechanics for initiating a trade that are mentioned in the user guide and strategy report.

Yes, there will be some trial and error when you first start, but that should clear up quickly.

The LEAPS will stay the same until at least January, if not longer, unless GLD pulls back to our LEAPS price. If it does, we will adjust our position accordingly. In most cases this means simply selling our current at-the-money LEAPS position and establishing a new position by buying new LEAPS with a delta of 0.80 and going out roughly two years in time.

The short call differs as it has a shorter time frame, so the price can vary wildly depending on the underlying price movement and the time left until expiration.

Oftentimes people will just wait until I sell more calls in the underlying ETF to initiate a position. For instance, I will most likely buy back the GLD short calls and sell more premium going out further in time. When this occurs, you could buy LEAPS then and sell the short calls in the alert if you wish.

Again, I will discuss this in length during tomorrow’s webinar and in a follow-up report. Stay tuned!

Portfolio Discussion

All-Weather Portfolio
The All-Weather portfolio is essentially flat (up 0.6%) since it was initiated back on June 3. The overall market is down 6.8% over the same time.

The commodities portion of the portfolio has been the laggard that has held back the portfolio over the past few weeks, with DBC and GLD both seeing some heavy selling. However, the losses in DBC and GLD have been met with positive gains in our bond positions (TLT, IEF) and our total market exposure in VTI.

I’m more than pleased with the performance so far. As I said before, the historic volatility that has impacted the overall market hasn’t put a dent in our All-Weather portfolio. And that gives me confidence about how this portfolio will perform in good times and bad going forward.

Over the next few days, I plan to buy back the July 15 calls in both IEF and VTI. Stay tuned for an upcoming alert or two.

Yale Endowment Portfolio
The Yale Endowment portfolio is up slightly (1.9%) since it was initiated back on June 22.

There really isn’t too much to say at the moment since it’s only been three weeks since we added the five positions that make up the portfolio. That being said, like our All-Weather portfolio, I’ve been happy with the early results given the volatile price action in the market.

If we see a continued push higher or a flat or even slightly lower market we should start to see some nice returns going forward. But we have to remain patient and allow the premium that we sell to pile up. Because the more premium we sell the lower our cost basis becomes on each and every position, and that is ultimately the true power of using a poor man’s covered call approach with passive portfolios.

Dogs (and Small Dogs) of the Dow
No positions at the moment. I will be adding positions shortly.

Warren Buffett’s Patient Investor Portfolio
No positions at the moment. I will be adding positions shortly.

James O’Shaughnessy’s Growth/Value Portfolio
No positions at the moment. I will be adding positions shortly.

Next Live Analyst Briefing with Q&A

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

The next Cabot Options Institute – Fundamentals issue will be published on August 15, 2022.

About the Analyst

Andy Crowder

Andy Crowder is a professional options trader, researcher and Chief Analyst of Crowder Options. 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.