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

Cabot Options Institute – Income Trader Issue: November 14, 2022

We decided to stay on the sidelines last week given the market action, but intend to add several new positions for each of our portfolios this week. As I’ve stated in the past, I don’t plan on ramping up positions quickly; rather, I take a methodical approach to slowly adding a few new positions to the mix. As for our current positions, they remain in good shape. Other than BITO we’ve had a good stretch over the past few months and if all goes well BITO might even join the club, if we continue to allow it.

Current Positions

Open DateTickerStock Price (open)Stock Price (current)StrategyTradeOpen PriceCurrent PriceDelta
Income Wheel Portfolio - Open Trades
10/17/2022BITO$12.01 $9.78 Covered CallNovember 25, 2022 13.5 Call$0.38 $0.06 0.93
10/17/2022GDX$23.57 $28.30 Covered CallNovember 25, 2022 26 Call$0.58 $2.50 0.19
10/25/2022KO$58.30 $61.32 Covered CallNovember 25, 2022 60 Call$0.80 $1.78 0.29
10/25/2022WFC$45.43 $47.55 Selling PutsNovember 25, 2022 43 Puts$0.96 $0.07 0.05
11/3/2022PFE$46.44 $47.60 Selling PutsDecember 16, 2022 45 Puts$1.08 $0.55 0.23
Income Trades Portfolio - Open Trades
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%
9/7/202210/17/2022BITOShort PutOctober 21, 2022 14 Call$0.40 $0.03 $0.37 2.60%
9/7/202210/17/2022GDXShort PutOctober 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%
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 ETFARKK61.940.968.6
Proshares Bitcoin ETFBITO116.054.629.9
iShares MSCI Emerging MarketsEEM25.135.378.3
iShares MSCI EAFEEFA24.527.380.7
iShares MSCI Mexico ETFEWW25.326.877.9
iShares MSCI BrazilEWZ54.773.940.7
iShares China Large-CapFXI49.155.170.4
Vaneck Gold MinersGDX44.250.775.3
SPDR Gold GLD17.014.879.7
iShares High-YieldHYG15.141.565.6
SPDR Regional BankKRE27.812.463.6
iShares Silver TrustSLV34.14674.6
iShares 20+ Treasury BondTLT20.728.462.2
United States Oil FundUSO41.422.455.8
Proshares Ultra VIX ShortUVXY90.31.531.7
Barclays S&P 500 VIX ETNVXX61.92.732.1
SPDR BiotechXLB24.842.279
SPDR Energy Select XLE35.42664.8
SPDR FinancialsXLF24.716.176.1
SPDR UtilitiesXLU23.848.361.9
SPDR Retail XRT36.321.270.5

Stock Watchlist – Weekly Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
Bank of AmericaBAC30.314.579.3
Bristol-MyersBMY26.13339.1
Citigroup C32.016.380.3
CostcoCOST33.633.672.9
Cisco SystemsCSCO37.149.755
CVS HealthCVS27.12749.8
Dow Inc.DOW36.341.277.2
Duke EnergyDUK25.429.660.3
FordF44.920.477.1
Gilead SciencesGILD32.932.375.7
General MotorsGM43.120.875.1
Intel INTC40.143.771.8
Johnson & JohnsonJNJ21.427.640.2
Coca-ColaKO21.020.671.9
Altria GroupMO26.824.838.1
Merck MRK23.514.441.2
Marvell Tech.MRVL68.464.365.2
Morgan StanleyMS31.620.178.9
MicronMU46.729.277.9
OracleORCL35.943.670.8
PfizerPFE26.69.262.7
PaypalPYPL49.225.769.7
StarbucksSBUX32.732.275.3
AT&TT26.52377.9
VerizonVZ24.927.663.9
Walgreens Boots AllianceWBA32.328.779.3
Wells Fargo WFC313.461.7
WalmartWMT3057.761.8
Exxon-MobilXOM33.223.665.2

Weekly Trade Discussion: Open Positions

Income Wheel Portfolio: Open Positions

Covered Call: GDX November 25, 2022, 26 Calls
Original trade published on 10-17-2022 (click here to see original alert)

Current Comments: We’ve locked in $3, or 10.3% worth of premium, over five trades since GDX was introduced to the portfolio. Our current breakeven point is 26.

Recently, with GDX trading for 23.57, we decided to sell the GDX November 25, 2022 26 calls for $0.58. At the time, the probability of the 26 calls closing out-of-the-money was 76.40%.

Now, with GDX trading higher at 28.3, the probability of success on our 26 calls stands at 26.20%. The 26 calls are worth $2.53. If GDX closes above 26 at November 25 expiration, no worries, we simply lock in profits and start the Income Wheel over again by selling puts in GDX.

COI_IT_111422_GDX-1536x274.png

Covered Call: BITO November 25, 2022, 13.5 Calls
Original trade published on 10-17-2022 (click here to see original alert)

Current Comments: We’ve managed to sell and lock in a total of $2.18 worth of premium, or 13.6%, over four trades since introducing this position 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 13.44.

Recently, with BITO trading for 12.01, we decided to sell the BITO November 25, 2022 13.5 calls for $0.38. At the time, the probability of the 13.5 calls closing out-of-the-money was 76.16%.

Now, with BITO trading lower at 13.06, the probability of success on the trade stands at 94.87%. The price stands at $0.06. With 11 days left until expiration there is little value left in our 13.5 calls, and therefore I plan on buying back our calls and selling more premium, if indeed we wish to continue with a position in BITO.

COI_IT_111422_BITO-1536x269.png

Covered Call: KO November 25, 2022, 60 Calls
Original trade published on 10-25-2022 (click here to see original alert)

Current Comments: We managed to lock in $2.79, or 4.65% worth of premium, over four trades. Our breakeven stands at 57.21.

Recently, with KO trading for 58.30, we decided to sell the KO November 25, 2022 60 calls for $0.80. At the time, the probability of the 60 calls closing out-of-the-money was 68.43%.

Now, with KO trading higher at 61.32 and just in-of-the-money, the probability of success on the trade stands at 29.84%. The current price of our 60 calls stands at roughly $1.77. No worries here—if our 60 calls happen to close in-the-money in 11 days I will be more than happy for our position to be called away, lock in some capital gains and premium and start the wheeling process over again by selling some puts in KO.

COI_IT_111422_KO-1536x265.png

Selling Puts: WFC November 25, 2022, 43 Puts
Original trade published on 10-25-2022 (click here to see original alert)

Current Comments: We’ve locked in $4.07, or 9.9% worth of premium, since introducing WFC to the portfolio back in late June. Our breakeven point, or cost basis on the position, is 36.93.

Several weeks ago, with WFC trading for 45.43, we started the wheel process over again by selling the 43 puts. At the time, the probability of the 43 puts closing out-of-the-money was 67.12%. Now, with WFC trading higher at 47.55, the probability of success stands at 93.71%, and the price of our 43 puts stands at $0.07. As a result of such little premium left in our 43 puts, there is a good chance we will buy our puts back and immediately sell more this week.

COI_IT_111422_WFC-1536x283.png

Selling Puts: PFE December 16, 2022, 45 Puts
Original trade published on 11-3-2022 (click here to see original alert)

Current Comments: We’ve managed to lock in $3.62, or 7.24% worth of premium, since introducing PFE to the portfolio. Our breakeven currently stands at 46.38.

Several weeks ago, with PFE trading for 46.44 we started the wheel process over again by selling the 45 puts for $1.08. At the time, the probability of the 45 puts closing out-of-the-money was 61.31%.

Now, with PFE trading higher at 47.60, the probability of success stands at 86.74%, and the price of our 45 puts stands at $0.15. Like our WFC puts, with such little premium left in our 45 puts, there is a good chance we will simply buy our puts back and immediately sell more this week.

COI_IT_111422_PFE-1536x286.png


The next Cabot Options Institute – Income Trader issue will be published on November 21, 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.