Please ensure Javascript is enabled for purposes of website accessibility
Income Trader
Reliable Income From Time-Tested Strategies

Cabot Options Institute – Income Trader Issue: January 17, 2023

Weekly Commentary

Our BITO and KO are all due to expire this week.

I will allow our BITO calls to carry through expiration, but plan to buy back our KO puts and immediately sell more puts, thereby collecting more premium for our position in KO.

Surprisingly, if BITO does close above our 11.5 strike at expiration this week, we should see a nice overall profit in the position. I’m not sure many can say they’ve been able to scratch and claw a profit out of BITO, especially when you consider we took on the position back in early June when BITO was trading for around $18. Again, another reason why premium selling should be an integral part of everyone’s investment plan.

I’ll also be selling some more premium in PFE today. We were assigned shares last week, so now we are in the covered call phase of the Income Wheel Strategy. Look for a trade alert over the next day or two.

I also added a new trade in GDX which I will add to the “Open Positions” section below next week as we are very early in the trade.

Moreover, with earnings in full swing, expect to see trading pick up a bit as I intend to add a few new positions to the mix.

Current Positions

Open DateTickerStock Price (open)Stock Price (current)StrategyTradeOpen PriceCurrent PriceDelta
Income Wheel Portfolio - Open Trades
12/19/2022BITO$10.31 $12.38 Covered CallJanuary 20, 2023 11.5 Call$0.30 $0.97 0.99
1/5/2023WFC$42.35 $44.22 Covered CallFebruary 17, 2023 45 Call$0.84 $0.84 0.41
1/9/2023GDX$31.59 $32.65 Selling PutsFebruary 17, 2023 29 Puts$0.54 $0.26 0.13
11/29/2022KO$62.23 $61.40 Selling PutsJanuary 20, 2023 60 Put$0.84 $0.10 0.14
Open DateClose DateTickerStrategyTradeOpen Price Closed PriceProfitReturn
Income Wheel Portfolio - Closed Trades
6/3/20227/8/2022PFEShort PutJuly 8, 2022 50 Put$0.65 $0.00 $0.65 1.30%
6/10/20227/15/2022GDXShort PutJuly 15, 2022 29 Put$0.66 Assigned at $29($2.75)-9.48%
6/10/20227/15/2022BITOShort PutJuly 15, 2022 16 Put$0.82 Assigned at $16($2.09)-13.10%
6/22/20227/21/2022WFCShort PutJuly 29, 2022 35 Put$0.80 $0.02 $0.78 2.23%
6/30/20228/10/2022KOShort PutAugust 19, 2022 57.5 Put$0.70 $0.03 $0.67 1.20%
7/21/20228/10/2022WFCShort PutAugust 19, 2022 39 Put$0.46 $0.04 $0.42 1.08%
7/18/20228/17/2022BITOCovered Call August 19, 2022 16 Call$0.50 $0.03 $0.47 3.59%
7/18/20228/17/2022GDXCovered Call August 19, 2022 28 Call$0.63 $0.05 $0.57 2.22%
7/11/20228/23/2022PFEShort PutAugust 19, 2022 50 Put$1.00 Assigned at $50$0.21 0.43%
8/17/20229/7/2022BITOCovered Call September 23, 2022 16.5 Call$0.55 $0.03 $0.52 4.00%
8/17/20229/7/2022GDXCovered Call September 23, 2022 28 Call$0.59 $0.07 $0.52 2.03%
8/23/20229/23/2022PFECovered Call October 21, 2022 50 Call $1.50 $0.09 $1.41 2.82%
8/10/20229/23/2022KOShort PutSeptember 23, 2022 60 Put$0.62 Assigned at $60($0.78)-1.30%
8/10/20229/23/2022WFCShort PutSeptember 23, 2022 41 Put$0.61 Assigned at $41$0.02 0.05%
9/7/202210/17/2022BITOCovered Call October 21, 2022 14 Call$0.40 $0.03 $0.37 2.60%
9/7/202210/17/2022GDXCovered Call October 21, 2022 26 Call$0.70 $0.04 $0.66 2.50%
9/26/202210/21/2022WFCCovered Call October 21, 2022 41 Call$1.30 Called away at $41$1.89 4.67%
9/26/202210/21/2022KOCovered Call October 21, 2022 60 Call$0.70 $0.00 $0.70 1.20%
9/23/20221028/2022PFECovered Call October 28, 2022 47 Call$0.56 Called away at $47$3.49 7.43%
10/17/202211/17/2022BITOCovered Call November 25, 2022 13.5 Call$0.38 $0.03 $0.35 2.60%
10/25/202211/17/2022WFCShort PutNovember 25, 2022 43 Put$0.96 $0.07 $0.89 2.00%
10/17/202211/25/2022GDXCovered Call November 25, 2022 26 Call$0.58 Called away at $26$1.09 3.87%
10/25/202211/25/2022KOCovered Call November 25, 2022 60 Call$0.80 Called away at $60$2.20 3.75%
11/3/202212/8/2022PFEShort PutDecember 16, 2022 45 Put$1.08 $0.02 $1.06 2.36%
11/17/202212/19/2022BITOCovered Call December 30, 2022 12 Call$0.45 $0.04 $0.41 3.42%
11/17/202212/30/2022WFCShort PutDecember 30, 2022 44 Put$1.02 Assigned at $44($1.37)-3.11%
11/29/20231/9/2023GDXShort PutJanuary 20, 2023 26 Put$0.87 $0.02 $0.85 3.27%
12/8/20221/13/2023PFEShort PutJanuary 13, 2023 49 Put$0.62 $0.00 ($0.53)-1.08%
Income Trades Portfolio - Closed Trades
7/26/20228/17/2022JPMShort PutSeptember 16, 2022 100 Put$1.22 $0.16 $1.06 1.10%

Weekly High-Probability Mean Reversion Indicator

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

Very Overboughtgreater than or equal to 80.1
Overbought60.1 to 80.0
Neutral40.1 to 60
Oversold20.1 to 40.0
Very Oversoldless than or equal to 20.0

Each week I also include the current implied volatility (IV) and IV Rank. I look for an IV rank above 40, preferably higher.

ETF Watchlist – Weekly Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
ARK Innovation ETFARKK48.20.277.6
Proshares Bitcoin ETFBITO61.110.993.7
iShares MSCI Emerging MarketsEEM18.2483.1
iShares MSCI EAFEEFA18.29.481.8
iShares MSCI Mexico ETFEWW22.20.185.1
iShares MSCI BrazilEWZ38.733.564.7
iShares China Large-CapFXI30.26.275.5
Vaneck Gold MinersGDX36.616.176.1
SPDR Gold GLD16.19.883
iShares High-YieldHYG10.33.676.8
SPDR Regional BankKRE22.72.566.3
iShares Silver TrustSLV31.82064.5
iShares 20+ Treasury BondTLT20.520.562.7
United States Oil FundUSO38.21.369.3
Proshares Ultra VIX ShortUVXY101.512.615.3
Barclays S&P 500 VIX ETNVXX69.011.114.1
SPDR BiotechXLB20.310.677.6
SPDR Energy Select XLE28.24.270.1
SPDR FinancialsXLF18.4779.5
SPDR UtilitiesXLU18.05.452.4
SPDR Retail XRT31.14.577.2

Stock Watchlist – Weekly Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
Bank of AmericaBAC24.20.979.3
Bristol-MyersBMY22.321.650.5
Citigroup C26.11088.9
CostcoCOST23.30.267.7
Cisco SystemsCSCO24.311.661.6
CVS HealthCVS26.927.830.5
Dow Inc.DOW30.86.490.4
Duke EnergyDUK21.111.359.1
FordF49.63054.7
Gilead SciencesGILD29.436.950.7
General MotorsGM40.514.253.6
Intel INTC47.251.579.2
Johnson & JohnsonJNJ19.524.430.4
Coca-ColaKO19.615.633
Altria GroupMO22.69.744.2
Merck MRK22.720.656
Marvell Tech.MRVL50.710.171.6
Morgan StanleyMS28.48.680.3
MicronMU402.666.2
OracleORCL22.83.889.4
PfizerPFE29.124.930.8
PaypalPYPL53.728.876.9
StarbucksSBUX31.622.672.6
AT&TT29.943.367.4
VerizonVZ27.341.667
Walgreens Boots AllianceWBA27.310.343.3
Wells Fargo WFC24.78.979.9
WalmartWMT18.52.953.8
Exxon-MobilXOM29.66.167.8

Weekly Trade Discussion: Open Positions

Income Wheel Portfolio: Open Positions

Covered Call: BITO January 20, 2023, 11.5 Calls
Original trade published on 12-19-2022 (click here to see original alert)

Current Comments: We’ve managed to sell and lock in a total of $3.04 worth of premium, or more than 15%, over five trades since introducing BITO to the Income Wheel Portfolio. We were assigned the stock for $16 back on July 15, 2022, so most of our premium has come during the covered call phase of our strategy. Our current breakeven stands at 12.99.

With BITO trading for roughly 12.50, our January 20, 2023, 11.5 calls that we sold for $0.30 on December 19 are currently worth $0.96. I plan on holding until expiration, allowing our shares to be taken away, and immediately selling more puts next week.

COI_IT_011723_BITO.png

Selling Puts: KO January 20, 2022, 60 Puts
Original trade published on 11-29-2022 (click here to see original alert)

Current Comments: A few weeks ago, we sold the January 20, 2023, 60 puts for $0.84.

Now, with KO trading for roughly 61.50, the probability of success stands at 86.24%, and the price of the 60 puts sits at $0.10. I plan to buy back our 60 puts and immediately sell more puts early in the week, most likely for the February 17 expiration cycle.

COI_IT_011723_KO.png

Covered Calls: WFC February 17, 2023, 45 Calls
Original trade published on 1-5-2023 (click here to see original alert)

Current Comments: Last week we sold the February 17, 2023, 45 calls for $0.84.

Now, with WFC trading for roughly 44, the probability of success stands at 71.15%, and the price of the 45 calls sits at $0.56. We are early in the expiration cycle, so there isn’t much to do at the moment other than to allow the wheel strategy to work its magic.

COI_IT_011723_WFC.png


The next Cabot Options Institute – Income Trader issue will be published on

January 23, 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.