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Fundamentals
Realistic Strategies, Realistic Returns

Cabot Options Institute – Fundamentals Issue: September 12, 2022

At the close of the August expiration cycle, back on the 19th, the SPDR S&P 500 ETF (SPY) was trading for 422.14. Now it’s trading 3.7% lower at 406.60.

For the year the S&P 500 (SPY) is down 14.7%, while the tech-heavy Nasdaq 100 (QQQ) and small-cap Russell 2000 (IWM) indexes are lower by 22.8% and 15.7%, respectively.

Nothing has changed from last month’s issue. I still expect to see bouts 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. Although, I will say that barring any real setbacks in inflation data or ongoing geopolitical concerns, I expect the market to hold the 2022 lows and potentially rally, particularly if inflation data subsides.

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

At the close of the August expiration cycle, back on the 19th, the SPDR S&P 500 ETF (SPY) was trading for 422.14. Now it’s trading 3.7% lower at 406.60.

For the year the S&P 500 (SPY) is down 14.7%, while the tech-heavy Nasdaq 100 (QQQ) and small-cap Russell 2000 (IWM) indexes are lower by 22.8% and 15.7%, respectively.

Nothing has changed from last month’s issue. I still expect to see bouts 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. Although, I will say that barring any real setbacks in inflation data or ongoing geopolitical concerns, I expect the market to hold the 2022 lows and potentially rally, particularly if inflation data subsides.

But as I stated in my last issue, during times of market extremes, I’ve learned to take a more cautious approach. 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 and 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 September expiration coming this Friday, we now have a few positions in our active portfolios and our passive portfolios that are humming along.

My apologies for the repetitiveness from last month’s issue. The market continues to experience range-bound chop and until we break out to either the downside or the upside, there really isn’t much to do but continue to sell premium when the time calls. 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. As my mentor, one of the original market makers on the CBOE, used to tell me repeatedly, patience pays.

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

Portfolio Discussion

All-Weather Portfolio
The All-Weather portfolio is up 5.7% since it was initiated back on June 3. The overall market is down 1.5% over the same time.

The song remains the same. The commodities portion of the portfolio has been the laggard that has held the portfolio back, with DBC and GLD both seeing noteworthy declines. However, the losses in DBC and GLD have been offset by modest gains in our bond positions (TLT, IEF) and our total market exposure in VTI.

Our VTI poor man’s covered call position is up 23.7% while the ETF alone is only up 7.8% over the same time.

I continue to be incredibly pleased with the performance of the overall portfolio so far as it’s outperforming its benchmark index by almost 5x.

As I said before, the historic volatility that has impacted the market hasn’t put a 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’ve managed to roll all of our September positions into the October expiration cycle, so now we only have to concern ourselves with managing our deltas just in case an underlying position pushes through its short call strike or happens to decline.

Yale Endowment Portfolio
The Yale Endowment portfolio is up 14.2% since it was initiated back on June 22. The S&P 500 is up 7.4% over the same time.

Like the more conservative All-Weather portfolio, I continue to be pleased with the performance of our Yale Endowment portfolio. We’ve managed our deltas appropriately, which has led to some tremendous gains particularly in SPY and VNQ. Both are outperforming their benchmarks by more than 3x. And remember, this is during one of the most volatile periods we’ve seen in the market.

We’ve managed to roll all of our September positions into October expiration, so now we only have to concern ourselves with managing our deltas just in case an underlying position pushes through its short call strike or happens to decline.

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 within the market. At the moment, we only have one position (AAPL), but intend to add several more in the coming weeks.

As I stated in our last issue, 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 not long ago and it remains the lone stock in the portfolio. Our position is up 6.7% while the stock alone is up only 1.2% 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, September 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 October 17, 2022.

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.