I’m going to keep it short this week as it has been a fairly quiet week for the Income Trader service. We added some calls on PFE, but other than that, we are well positioned into the September 23, 2022 expiration cycle. I plan on adding a minimum of two additional short-term positions next week and as I spoke about on our call last week I intend on taking some of the premium we’ve collected and create a black swan trade just in case we see a swift drawdown as we move into the latter part of 2022. 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.

Cabot Options Institute – Income Trader Issue: August 26, 2022

Before I get to this week’s issue, I wanted to let everyone know that starting September 12, our weekly issues will be released on Mondays instead of Fridays. This should allow me to give all of you more thorough weekly review and prep heading into the following week. As always, if you have any questions, comments or feedback, please do not hesitate to email me at andy@cabotwealth.com.

I’m going to keep it short this week as it has been a fairly quiet week for the Income Trader service. We added some calls on PFE, but other than that, we are well positioned into the September 23, 2022 expiration cycle. I plan on adding a minimum of two additional short-term positions next week and as I spoke about on our call last week I intend on taking some of the premium we’ve collected and create a black swan trade just in case we see a swift drawdown as we move into the latter part of 2022. 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.

Current Positions

Here are the various levels I use to determine if an ETF is in an oversold or overbought state.

ETF Watchlist

Stock Watchlist

Weekly Trade Discussion: Open Positions

Income Wheel Portfolio: Open Positions

Covered Call: PFE October 21, 2022, 50 Calls
Original trade published on 8-23-2022 (click to see original alert)

Current Comments: At the time of the trade, PFE was trading for 48.30. We sold the October 21, 2022, 50 calls for a credit of $1.50.

PFE is now trading for 47.37, roughly $1 lower than when we first initiated the trade and below our 50 call strike. As a result, we could lock in almost $0.50 worth of premium and immediately sell more premium, but my preference is to hold on a bit longer to see if PFE continues to decline. If we can lock in 50%, or $0.75 of the original premium sold over the next few weeks, I will do so and begin the process of immediately selling more calls against our newly issued shares.

Our probability of success stands at 70.87% and our probability of touch is 34.78%.

Call 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 76.71% and the probability of touch is 48.11%. With 29 days left until expiration, now it is all about allowing time decay to work its magic. Of course, if GDX pushes lower over the next week or so there is a good chance I will simply buy back our calls, lock in some premium and immediately sell more calls.

Call Side:

Covered Call: BITO September 23, 2022, 16.5 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 89.17% and the probability of touch is 22.85%. Not much to do here as we just placed the trade last 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. If it dips a bit lower and we can buy back our calls for $0.10 or less over the next week or two, I will buy back our calls, lock in some nice premium and immediately sell more calls.

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 45.20. Our break-even is 40.39. Our probability of success stands at 82.52% and our probability of touch is 34.39%.

With 29 days until expiration, we can almost lock in roughly 50% of the original premium we sold just over two weeks ago. If WFC moves higher over the coming week 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 64.05. Our break-even is 59.38. Our probability of success stands at 85.16%, while our probability of touch is reading 31.71%. Our puts are currently trading for $0.30. With 29 days until expiration we can lock in roughly 50% of the original premium we sold just over two weeks ago. If KO continues to move higher over the coming week 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 September 2, 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.