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Income Trader
Reliable Income From Time-Tested Strategies

Cabot Options Institute – Income Trader Issue: November 21, 2022

This week we have two positions due to expire: one in GDX, the other in KO.

Both positions are in the covered call phase of the income wheel strategy and both have calls that look to close in-the-money at the end of this week. If both close in-the-money, we will simply lock in our capital gains, premium and begin the wheel process over again by selling more puts in both positions early next week.

I also intend on adding a new short-term trade to the mix this week. Stay tuned!

More importantly, I hope all of you have a wonderful and safe Thanksgiving!!!

Current Positions

Open DateTickerStock Price (open)Stock Price (current)StrategyTradeOpen PriceCurrent PriceDelta
Income Wheel Portfolio - Open Trades
11/17/2022BITO$10.14 $10.17 Covered CallDecember 30, 2022 12 Call$0.45 $0.39 0.71
10/17/2022GDX$23.57 $27.37 Covered CallNovember 25, 2022 26 Call$0.58 $1.52 0.17
10/25/2022KO$58.30 $61.14 Covered CallNovember 25, 2022 60 Call$0.80 $1.33 0.21
11/17/2022WFC$46.02 $46.50 Selling PutsDecember 30, 2022 44 Put$1.02 $0.82 0.27
11/3/2022PFE$46.44 $48.23 Selling PutsDecember 16, 2022 45 Puts$1.08 $0.34 0.17
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%
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 Puts$0.96 $0.07 $0.89 2.00%
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 ETFARKK63.641.645.4
ProShares Bitcoin ETFBITO104.343.738.1
iShares MSCI Emerging MarketsEEM27.539.964.1
iShares MSCI EAFEEFA22.830.873.6
iShares MSCI Mexico ETFEWW27.221.569.2
iShares MSCI BrazilEWZ57.37632.9
iShares China Large-CapFXI49.656.561.3
VanEck Gold MinersGDX44.349.160.2
SPDR Gold GLD16.411.159.9
iShares High-YieldHYG14.130.558
SPDR Regional BankKRE28.313.245.3
iShares Silver TrustSLV33.936.949.3
iShares 20+ Treasury BondTLT23.046.160.9
United States Oil FundUSO45.938.333.5
ProShares Ultra VIX ShortUVXY94.83.226.4
Barclays S&P 500 VIX ETNVXX64.96.427
SPDR BiotechXLB25.040.664.5
SPDR Energy Select XLE36.835.551.9
SPDR FinancialsXLF25.512.763.3
SPDR UtilitiesXLU26.25261.7
SPDR Retail XRT37.628.559.4

Stock Watchlist – Weekly Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
Bank of AmericaBAC32.19.754.3
Bristol-MyersBMY23.012.255.4
Citigroup C32.612.762.6
CostcoCOST33.634.768.7
Cisco SystemsCSCO26.515.675.9
CVS HealthCVS26.122.151.8
Dow Inc.DOW38.045.352.5
Duke EnergyDUK25.130.560
FordF47.724.957.2
Gilead SciencesGILD32.330.780.9
General MotorsGM44.424.557.1
Intel INTC40.745.659
Johnson & JohnsonJNJ18.511.967.1
Coca-ColaKO20.611.467
Altria GroupMO27.12745.2
Merck MRK23.514.472
Marvell Tech.MRVL70.469.261.5
Morgan StanleyMS3221.763.3
MicronMU49.531.150.6
OracleORCL39.252.273.2
PfizerPFE27.71158.9
PayPalPYPL50.624.348.7
StarbucksSBUX31.822.173.3
AT&TT26.117.971.2
VerizonVZ25.43365.2
Walgreens Boots AllianceWBA31.524.760.4
Wells Fargo WFC31.23.751.2
WalmartWMT21.915.472.5
Exxon MobilXOM34.225.952.2

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 27.37, the probability of success on our 26 calls stands at 18.60%. The 26 calls are worth $1.53. But nothing has changed in our approach. 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_ET_112122_GDX.png

Covered Call: BITO December 30, 2022, 12 Calls
Original trade published on 11-17-2022 (click here to see original alert)

Current Comments: We’ve managed to sell and lock in a total of $2.63 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 12.99.

Last, with BITO trading for 10.14, and little premium in our November 13.5 calls, we decided to sell the BITO December 30, 2022 12 calls for $0.45.

Now, with BITO trading at 10.17, not much has changed. The price stands at $0.39.

COI_ET_112122_BITO.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 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 61.14 and just in-the-money, the probability of success on the trade stands at 22.17%. The current price of our 60 calls stands at roughly $1.34. No worries here—if our 60 calls happen to close in-the-money in 5 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 puts in KO.

COI_ET_112122_KO.png

Selling Puts: WFC December 30, 2022, 44 Puts
Original trade published on 11-17-2022 (click here to see original alert)

Current Comments: We’ve locked in $5.09 worth of premium since introducing WFC to the portfolio back in late June. Our breakeven point, or cost basis on the position, is 35.91.

Last week, with WFC trading for 46.02, we sold puts again, this time at the 44 strike. Now, with WFC trading higher at 46.50, the probability of success stands at 69.46%, and the price of our 44 puts stands at $0.83.

COI_ET_112122_WFC.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 48.23, the probability of success stands at 81.26%, and the price of our 45 puts stands at $0.34.

COI_ET_112122_PFE.png


The next Cabot Options Institute – Income Trader issue will be published on November 28, 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.