All of the major indices pushed higher this week which helped the majority of our positions.
The S&P 500 (SPY) pushed 2.0% since last week’s issue while the tech-heavy Nasdaq 100 (QQQ) gained an impressive 4.6%. Growth as seen through the Russell 2000 (IWM) saw an increase of 4.7%.
Nothing new here.
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.
Cabot Options Institute – Income Trader Issue: July 8, 2022
All of the major indices pushed higher this week which helped the majority of our positions.
The S&P 500 (SPY) pushed 2.0% since last week’s issue while the tech-heavy Nasdaq 100 (QQQ) gained an impressive 4.6%. Growth as seen through the Russell 2000 (IWM) saw an increase of 4.7%.
Nothing new here.
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.
The last four out of five weeks have seen a swing of 5% or more, which is historic. Couple that historically volatile stretch with analyst Jason Goepfert’s (of Sundial Capital Research) recent statistic stating, “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,” and we should have a good understanding of just how extreme volatility has been over the past few months.
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. 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 trade, understanding there is an ebb and flow to trading frequency.
As for our current open positions (read more detail below) GDX and BITO are definitely the laggards of the group, but our PFE, WFC and KO trades look good at the moment.
Unless something unforeseen occurs our PFE puts should expire worthless, thereby locking in a max profit. And since I’m wheeling PFE, I plan to sell more puts in the underlying stock on Monday. I also intend on selling some additional premium in a few new positions next week as I want to keep laddering premium in a variety of different underlying stocks.
Current Positions
| Open Date | Ticker | Stock Price (open) | Stock Price (current) | Strategy | Trade | Open Price | Current Price | Delta |
| Income Wheel Portfolio | ||||||||
| 6/3/2022 | PFE | $53.10 | $53.42 | Sell Put | July 8, 2022 50 Put | $0.65 | $0.01 | 0.02 |
| 6/10/2022 | GDX | $30.76 | $27.16 | Sell Put | July 15, 2022 29 Put | $0.66 | $1.94 | 0.87 |
| 6/10/2022 | BITO | $18.19 | $13.53 | Sell Put | July 15, 2022 16 Put | $0.82 | $2.67 | 0.89 |
| 6/22/2022 | WFC | $38.57 | $40.12 | Sell Put | July 29, 2022 35 Put | $0.80 | $0.32 | 0.18 |
| 6/30/2022 | KO | $62.75 | $62.91 | Sell Put | August 19, 2022 57.5 Put | $0.70 | $0.57 | 0.17 |
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 | 70.6 | 61.9 | 65.9 |
| Proshares Bitcoin ETF | BITO | 89 | 44.5 | 56.3 |
| iShares MSCI Emerging Markets | EEM | 25.6 | 39.6 | 49.8 |
| iShares MSCI EAFE | EFA | 26.5 | 47.9 | 44.4 |
| iShares MSCI Mexico ETF | EWW | 25.6 | 59 | 31.4 |
| iShares MSCI Brazil | EWZ | 38.5 | 54.8 | 42.4 |
| iShares China Large-Cap | FXI | 34.4 | 27.5 | 61.4 |
| Vaneck Gold Miners | GDX | 44.2 | 68.1 | 32.5 |
| SPDR Gold | GLD | 20.4 | 34.2 | 13.5 |
| iShares High-Yield | HYG | 17.1 | 67.1 | 57.9 |
| SPDR Regional Bank | KRE | 32.4 | 35.2 | 54.2 |
| iShares Silver Trust | SLV | 33.9 | 34.9 | 16 |
| iShares 20+ Treasury Bond | TLT | 23.9 | 65.3 | 48.3 |
| United States Oil Fund | USO | 55.2 | 43.7 | 37.3 |
| Proshares Ultra VIX Short | UVXY | 90.3 | 1.1 | 33.5 |
| Barclays S&P 500 VIX ETN | VXX | 65.4 | 0.9 | 36.6 |
| SPDR Biotech | XLB | 28 | 55.8 | 38.6 |
| SPDR Energy Select | XLE | 48.3 | 79.9 | 40 |
| SPDR Financials | XLF | 28.4 | 41.4 | 55.2 |
| SPDR Utilities | XLU | 22.1 | 61 | 54.1 |
| SPDR Retail | XRT | 41.6 | 57.2 | 53.4 |
Stock Watchlist
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| Bank of America | BAC | 39.7 | 49.3 | 47.5 |
| Bristol-Myers | BMY | 26.3 | 39.4 | 35.9 |
| Citigroup | C | 42.7 | 59.6 | 47.8 |
| Costco | COST | 31.1 | 37.9 | 71.5 |
| Cisco Systems | CSCO | 29.5 | 48.1 | 51.5 |
| CVS Health | CVS | 30.2 | 48.2 | 55.5 |
| Dow Inc. | DOW | 40.8 | 77.2 | 39.7 |
| Duke Energy | DUK | 25 | 72 | 54.6 |
| Ford | F | 59.2 | 46.9 | 51.3 |
| Gilead Sciences | GILD | 29.2 | 23.5 | 61.2 |
| General Motors | GM | 55.2 | 69 | 46.8 |
| Intel | INTC | 46 | 65.7 | 54.5 |
| Johnson & Johnson | JNJ | 22.6 | 46 | 55.9 |
| Coca-Cola | KO | 26.5 | 65.3 | 53.1 |
| Altria Group | MO | 35.8 | 80.9 | 33.7 |
| Merck | MRK | 26.9 | 40.7 | 62.8 |
| Marvell Tech. | MRVL | 59.3 | 52.9 | 53.5 |
| Morgan Stanley | MS | 41.1 | 59.8 | 51.6 |
| Micron | MU | 48.1 | 45.1 | 55.9 |
| Oracle | ORCL | 29.7 | 25.5 | 62.8 |
| Pfizer | PFE | 34.7 | 48.9 | 68.7 |
| Paypal | PYPL | 74.1 | 70.3 | 54 |
| Starbucks | SBUX | 41.7 | 75.5 | 65.9 |
| AT&T | T | 29.9 | 56.7 | 62.9 |
| Verizon | VZ | 24.5 | 49.9 | 46.5 |
| Walgreens Boots Alliance | WBA | 32.2 | 43.7 | 34.3 |
| Wells Fargo | WFC | 44.7 | 50.7 | 52.7 |
| Walmart | WMT | 25.7 | 65 | 65.5 |
| Exxon-Mobil | XOM | 47.3 | 77.5 | 43.3 |
Weekly Trade Discussion: Open Positions
Income Wheel Portfolio Open Positions
Selling Put: PFE July 8, 2022, 50 Puts
Original trade published on 6-3-2022 (click to see original alert)
Current Comments: At the time of the trade, PFE was trading for 53.10. We sold the July 8, 2022, 50 puts for a credit of $0.65. Our probability of success on the trade was 73.28% and the probability of touch was 51.35%.
Unless something unforeseen occurs, it looks as though we will allow our July 8 PFE 50 puts to expire worthless, thereby reaping the entire credit of $0.65.
On Monday I will be looking to sell some more puts in PFE. Stay tuned for an alert with the stated trade.
Selling Put: GDX July 15, 2022, 29 Puts
Original trade published on 6-10-2022 (click here to see original alert)
Current Comments: At the time of the trade GDX was trading for 30.76. We sold the July 15, 2022, 29 puts for a credit of $0.66. Our probability of success on the trade was 67.54% and the probability of touch was 62.30%.
GDX is now trading slightly lower at 27.16, $1.84 below our 29 put strike. Our breakeven is 28.34.
Our probability of success stands at 11.09% and our probability of touch is 22.50%.
As I’ve stated over the past few weeks, I’m not really concerned, as I plan to wheel GDX. If I’m assigned shares at the 29 strike, I’ll gladly sell calls until my shares are eventually called away and then I’ll repeat the wheel process all over again. By continuing to sell premium we will lower our cost basis on an ongoing basis.
Put Side
Selling Put: BITO July 15, 2022, 16 Puts
Original trade published on 6-10-2022 (click here to see original alert)
Current Comments: At the time of the trade BITO was trading for 18.19 We sold the July 15, 2022, 16 puts for a credit of $0.82. Our probability of success on the trade was 64.65% and the probability of touch was 65.50%.
As I’ve stated since about a week after the trade, the timing could not have been worse on this one. That being said, BITO is trading well above its near-term of low of 11.56. BITO is now trading at 13.53. Since BITO currently sits $2.47 below our 16 put and we sold $0.82 worth of premium we are down $1.65 ($2.47 - $0.82), or 10.3%.
Not much has changed since last week. I’m not overly concerned about BITO. Yes, we are certainly down, but I plan to wheel BITO and the premium in the bitcoin ETF is rich at the moment. When or if I’m assigned shares at the 16 put strike, I’ll gladly accept them and sell calls until my shares are eventually called away and then I’ll repeat the wheel process all over again. By continuing to sell premium we will lower our cost basis on an ongoing basis.
As I stated in the last subscriber-exclusive webinar and elsewhere, I want to have underlying stocks and ETFs with various levels of implied volatility. BITO will certainly be at the extreme side of IV, but I’m OK having a bit of higher-beta exposure, knowing it will be limited to one or two stocks over the two portfolios in the Income Trader service.
Put Side
Selling Put: WFC July 29, 2022, 35 Puts
Original trade published on 6-22-2022 (click to see original alert)
Current Comments: At the time of the trade WFC was trading for 38.57. We sold the July 29, 2022, 35 puts for a credit of $0.80. Our probability of success on the trade was 72.13% and the probability of touch was 53.18%.
WFC is now trading slightly higher at 40.12, $5.12 above our 35 put strike. Our breakeven is 32.10. Our probability of success stands at 84.88% and our probability of touch is 29.25%.
WFC is due to announce earnings next week, but I plan to hold the position through the announcement. However, things could change as we approach WFC earnings later in the week. If we see our WFC puts lose a bit more value, we might just buy them back, lock in some profits and reestablish a new position after the announcement.
But, over the long haul, I’m not going to fret over either decision too much, as I plan to wheel WFC. If I’m assigned shares at the 35 strike, I’ll gladly sell calls until my shares are eventually called away and then I’ll repeat the wheel process all over again. By continuing to sell premium we will lower our cost basis on an ongoing basis.
Put Side
Selling Put: KO August 19, 2022, 57.5 Puts
Original trade published on 6-30-2022 (click to see original alert)
Current Comments: At the time of the trade KO was trading for 62.75. We sold the August 19, 2022, 57.5 puts for a credit of $0.70. Our probability of success on the trade was 77.88% and the probability of touch was 42.59%.
KO is now trading slightly higher at 62.91, $5.41 above our 57.5 put strike. Our breakeven is 56.80. KO is actually trading (to the penny) exactly where it was at this time last week, yet due to the magic of time decay our probability of success increased from 78% to 80.62% and our probability of touch declined from over 41% to 37.46%. Our puts are currently worth $0.57.
Put Side
Income Trades Portfolio Open Positions
No open positions.
Next Live Analyst Briefing with Q&A
Our next live analyst briefing with Q&A is scheduled for Thursday, July 14, 2022 at 12 p.m. ET. As always, I will be discussing the options market, have a detailed look at open positions, go over strategies used, and do a follow-up with live questions. I look forward to seeing you all there! Register here.
The next Cabot Options Institute – Income Trader issue will be published on July 15, 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.