As I spoke about in our monthly subscriber-exclusive call, the ongoing market rally helped us to have a wonderful expiration cycle. We were able to lock in 11.4% in total premium and our BITO position is now above break-even. We still have a small loss in GDX, but the premium we’ve managed to bring in over the past two expiration cycles far outweighs the miniscule decline in GDX.
I want to ladder our trades so that we are bringing in a steady stream of premium every week to two weeks. So far, so good.
I plan to add several more new positions to the mix over the next week or so and buy back a few of our put positions (KO, WFC), lock in profit and sell even more premium in the same underlying stocks.
Cabot Options Institute – Income Trader Issue: August 19, 2022
As I spoke about in our monthly subscriber-exclusive call, the ongoing market rally helped us to have a wonderful expiration cycle. We were able to lock in 11.4% in total premium and our BITO position is now above break-even. We still have a small loss in GDX, but the premium we’ve managed to bring in over the past two expiration cycles far outweighs the minuscule decline in GDX.
I want to ladder our trades so that we are bringing in a steady stream of premium every week to two weeks. So far, so good.
I plan to add several more new positions to the mix over the next week or so and buy back a few of our put positions (KO, WFC), lock in profits and sell even more premium in the same underlying stocks.
On the call I also discussed a hedge trade that I plan on making with some of the premium we’ve collected. Sort of a black swan trade just in case we see a swift drawdown. It never hurts to have a little insurance just in case and it would only cost us a few percentage points. I’ll be discussing the details of the trade in the next issue or two.
Current Positions
| Open Date | Ticker | Stock Price (open) | Stock Price (current) | Strategy | Trade | Open Price | Current Price | Delta |
| Income Wheel Portfolio - Open Trades | ||||||||
| 7/11/2022 | PFE | $53.35 | $48.29 | Short Put | August 19, 2022 50 Put | $1.00 | $0.77 | 0.82 |
| 8/10/2022 | KO | $63.15 | $63.22 | Short Put | September 23, 2022 60 Put | $0.62 | $0.54 | 0.21 |
| 8/10/2022 | WFC | $44.48 | $45.25 | Short Put | September 23, 2022 41 Put | $0.61 | $0.50 | 0.21 |
| 8/17/2022 | BITO | $14.41 | $14.41 | Covered Call | September 23, 2022 16.5 Call | $0.55 | $0.55 | 0.31 |
| 8/17/2022 | GDX | $26.11 | $26.11 | Covered Call | September 23, 2022 28 Call | $0.59 | $0.59 | 0.3 |
| Income Trades Portfolio - Open Trades | ||||||||
| Open Date | Close Date | Ticker | Strategy | Trade | Open Price | Closed Price | Profit | Return |
| Income Wheel Portfolio - Closed Trades | ||||||||
| 6/3/2022 | 7/8/2022 | PFE | Short Put | July 8, 2022 50 Put | $0.65 | $0.00 | $0.65 | 1.30% |
| 6/10/2022 | 7/15/2022 | GDX | Short Put | July 15, 2022 29 Put | $0.66 | Assigned at $29 | ($2.75) | -9.48% |
| 6/10/2022 | 7/15/2022 | BITO | Short Put | July 15, 2022 16 Put | $0.82 | Assigned at $16 | ($2.09) | -13.10% |
| 6/22/2022 | 7/21/2022 | WFC | Short Put | July 29, 2022 35 Put | $0.80 | $0.02 | $0.78 | 2.23% |
| 6/30/2022 | 8/10/2022 | KO | Short Put | August 19, 2022 57.5 Put | $0.70 | $0.03 | $0.67 | 1.20% |
| 7/21/2022 | 8/10/2022 | WFC | Short Put | August 19, 2022 39 Put | $0.46 | $0.04 | $0.42 | 1.08% |
| 7/18/2022 | 8/17/2022 | BITO | Covered Call | August 19, 2022 16 Call | $0.50 | $0.03 | $0.47 | 3.59% |
| 7/18/2022 | 8/17/2022 | GDX | Covered Call | August 19, 2022 28 Call | $0.63 | $0.05 | $0.57 | 2.22% |
| Income Trades Portfolio - Closed Trades | ||||||||
| 7/26/2022 | 8/17/2022 | JPM | Short Put | September 16, 2022 100 Put | $1.22 | $0.16 | $1.06 | 1.10% |
Here are the various levels I use to determine if an ETF is in an oversold or overbought state.
| Very Overbought | greater than or equal to 80.1 |
| Overbought | 60.1 to 80.0 |
| Neutral | 40.1 to 60 |
| Oversold | 20.1 to 40.0 |
| Very Oversold | less than or equal to 20.0 |
ETF Watchlist
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| ARK Innovation ETF | ARKK | 60.3 | 40.5 | 40.8 |
| ProShares Bitcoin ETF | BITO | 79.2 | 20.4 | 47.6 |
| iShares MSCI Emerging Markets | EEM | 20 | 11.7 | 51.9 |
| iShares MSCI EAFE | EFA | 22 | 20.5 | 49.7 |
| iShares MSCI Mexico ETF | EWW | 24.3 | 12.6 | 59.3 |
| iShares MSCI Brazil | EWZ | 36.6 | 34.9 | 75.6 |
| iShares China Large-Cap | FXI | 28.7 | 8.7 | 30.1 |
| VanEck Gold Miners | GDX | 41.6 | 53.6 | 38.6 |
| SPDR Gold | GLD | 15.5 | 5.6 | 39.7 |
| iShares High-Yield | HYG | 14.9 | 38.4 | 45.6 |
| SPDR Regional Bank | KRE | 36.3 | 6.8 | 75.5 |
| iShares Silver Trust | SLV | 28.7 | 17.4 | 37.1 |
| iShares 20+ Treasury Bond | TLT | 20.4 | 37.7 | 39.8 |
| United States Oil Fund | USO | 50.7 | 31 | 52.2 |
| ProShares Ultra VIX Short | UVXY | 108.4 | 13.2 | 19.6 |
| Barclays S&P 500 VIX ETN | VXX | 74.1 | 15.9 | 40 |
| SPDR Biotech | XLB | 22.7 | 27 | 67.8 |
| SPDR Energy Select | XLE | 36.6 | 28.7 | 70.3 |
| SPDR Financials | XLF | 22.9 | 12.8 | 79.7 |
| SPDR Utilities | XLU | 20.8 | 24.9 | 89.3 |
| SPDR Retail | XRT | 41.4 | 47.8 | 62.6 |
Stock Watchlist
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| Bank of America | BAC | 30.8 | 15.7 | 71.2 |
| Bristol-Myers | BMY | 25.6 | 24.3 | 48.9 |
| Citigroup | C | 30.4 | 11.9 | 59.7 |
| Costco | COST | 25.5 | 18.3 | 75.5 |
| Cisco Systems | CSCO | 34.7 | 11.7 | 88 |
| CVS Health | CVS | 21.7 | 10.6 | 55.1 |
| Dow Inc. | DOW | 30.4 | 16.7 | 69.9 |
| Duke Energy | DUK | 19.6 | 0.8 | 72.7 |
| Ford | F | 42.9 | 4.4 | 65.8 |
| Gilead Sciences | GILD | 24.4 | 7.3 | 65.1 |
| General Motors | GM | 41.1 | 24.4 | 61.7 |
| Intel | INTC | 34.6 | 32 | 49.6 |
| Johnson & Johnson | JNJ | 20.2 | 22.3 | 33.2 |
| Coca-Cola | KO | 20 | 19.4 | 72.1 |
| Altria Group | MO | 28.6 | 31.9 | 75.3 |
| Merck | MRK | 24.2 | 23.8 | 67.8 |
| Marvell Tech. | MRVL | 63.3 | 55.7 | 51.6 |
| Morgan Stanley | MS | 27.6 | 4 | 82.2 |
| Micron | MU | 41.1 | 28.7 | 51.8 |
| Oracle | ORCL | 35.6 | 41.6 | 71.4 |
| Pfizer | PFE | 28.6 | 21.9 | 35.2 |
| PayPal | PYPL | 46.3 | 30.3 | 65.1 |
| Starbucks | SBUX | 33.6 | 39.1 | 65.2 |
| AT&T | T | 24.9 | 20 | 49.3 |
| Verizon | VZ | 25.4 | 34.8 | 31.5 |
| Walgreens Boots Alliance | WBA | 27 | 30.5 | 34 |
| Wells Fargo | WFC | 30.7 | 1.1 | 73.7 |
| Walmart | WMT | 22 | 20.5 | 77.6 |
| Exxon Mobil | XOM | 36 | 33.8 | 63.8 |
Weekly Trade Discussion: Open Positions
Income Wheel Portfolio Open Positions
Selling Put: PFE August 19, 2022, 50 Puts
Original trade published on 7-11-2022 (click to see original alert)
Current Comments: At the time of the trade, PFE was trading for 53.35. We sold the August 19, 2022, 50 puts for a credit of $1.00. Our probability of success on the trade was 69.72% and the probability of touch was 58.04%.
PFE is now trading for 48.58, several dollars lower than when we first initiated the trade and below our 50 put strike. Our break-even on the trade is 49.
Our probability of success stands at 7.45% and our probability of touch is 14.98%. No worries here. PFE is part of our Income Wheel strategy, so if PFE does close below our short put strike at expiration we will simply begin the process of selling covered calls on our newly issued shares. With PFE trading below our short put strike I will most likely allow our PFE puts to expire, be assigned shares of PFE, and sell calls against my newly assigned shares early next week.
Put Side:
Covered Call: GDX September 23, 2022, 28 Calls
Original trade published on 8-17-2022 (click here to see original alert)
Current Comments: As part of our Income Wheel Strategy, we were assigned shares of GDX at the 29 strike during the July expiration cycle. At the time GDX was trading for 25.59, and it is currently trading for 25.81. Our total break-even on the position currently stands at 27.18, so with GDX currently trading for 25.81 we are down slightly on the position. No worries. Like BITO (see below), GDX offers wonderful opportunities to sell premium due to its high IV and we plan on continuing to take advantage of it.
We recently sold the September 23, 2022, 28 calls for $0.59. At the time the probability of success of the 28 calls was 74.05%. Now the calls stand at 77.37% and the probability of touch is 46.85%. If GDX dips a little lower over the next week or so there is a good chance that I will buy back our calls, lock in some premium and sell additional premium during the same expiration cycle.
Call Side:
Covered Call: BITO August 19, 2022, 16 Calls
Original trade published on 8-17-2022 (click here to see original alert)
Current Comments: As part of our Income Wheel Strategy, we were assigned shares of BITO at the 16 strike. BITO closed at 13.11 at the end of July expiration, but now stands at 14.39. Our total break-even on the position currently stands at 14.16.
We recently sold the September 23, 2022, 16.5 calls for $0.55. At the time the probability of success of the 16.5 calls was 76.47%. Now the calls stand at 76.96% and the probability of touch is 48.92%. Not much to do here as we just placed the trade on Wednesday. If BITO can manage to climb towards the 16.5 strike at expiration, we are going to have a healthy profit on our hands.
Call Side:
Selling Put: WFC September 23, 2022, 41 Puts
Original trade published on 8-10-2022 (click to see original alert)
Current Comments: At the time of the trade, WFC was trading for 44.48. We sold the September 23, 2022, 41 puts for a credit of $0.61. Our probability of success on the trade was 75.44% and the probability of touch was 47.48%.
WFC is now trading higher at 46.14. Our break-even is 40.39. Our probability of success stands at 85.57% and our probability of touch is 28.01%.
With 36 days until expiration, we can lock in roughly 50% of the original premium we sold just over a week ago. If WFC continues to move higher over the coming week or so there is a good chance that I will buy back our puts and sell more in the same expiration cycle or possibly one week out, at the September 30, 2022, expiration cycle.
Put Side:
Selling Put: KO September 23, 2022, 60 Puts
Original trade published on 8-10-2022 (click to see original alert)
Current Comments: At the time of the trade, KO was trading for 63.15. We sold the September 23, 2022, 60 puts for a credit of $0.62. Our probability of success on the trade was 74.78% and the probability of touch was 49.13%.
KO is now trading higher at 65.22. Our break-even is 59.38. Our probability of success stands at 87.14%, while our probability of touch is reading 25.21%. Our puts are currently trading for $0.27. Like our WFC puts, with 36 days until expiration we can lock in roughly 50% of the original premium we sold just over a week ago. If KO continues to move higher over the coming week or so there is a good chance that I will buy back our puts and sell more in the same expiration cycle or possibly one week out, at the September 30, 2022, expiration cycle.
Put Side:
The next Cabot Options Institute – Income Trader issue will be published on August 26, 2022.
About the Analyst
Andy Crowder
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.