Not much has changed with our trades since last week’s issue. As a result, I’m simply going to reiterate what I stated last week.
The portfolio continues to perform well in what has been a very difficult market for most traders and their respective portfolios. While I would love to have more trades on, I’m perfectly fine keeping our level at five open trades per expiration cycle with the understanding that as opportunities arise, I will add more. But with a widely vacillating market and a host of bearish crosscurrents I plan on maintaining a fairly conservative approach.
Cabot Options Institute – Income Trader Issue: September 19, 2022
Not much has changed with our trades since last week’s issue. As a result, I’m simply going to reiterate what I stated last week.
The portfolio continues to perform well in what has been a very difficult market for most traders and their respective portfolios. While I would love to have more trades on, I’m perfectly fine keeping our level at five open trades per expiration cycle with the understanding that as opportunities arise, I will add more. But with a widely vacillating market and a host of bearish crosscurrents I plan on maintaining a fairly conservative approach.
I also plan to add a hedging position to the mix this week for those that want a little portfolio insurance just in case the market pushes sharply lower. I mentioned a few potential strategies that I’m inclined to use in our monthly subscriber-exclusive webinar that occurred last Thursday. I discussed potentially adding a few bear call spreads, etc., just to give us a little protection to the downside, particularly with our put positions. This also allows us to add a few more short-term trades, going out 30 to 45 days, to the mix.
Current Positions
| Open Date | Ticker | Stock Price (open) | Stock Price (current) | Strategy | Trade | Open Price | Current Price | Delta |
| Income Wheel Portfolio - Open Trades | ||||||||
| 7/11/2022 | PFE | $53.35 | $46.03 | Covered Call | October 21, 2022 50 Call | $1.50 | $0.34 | 0.83 |
| 8/10/2022 | KO | $63.15 | $59.54 | Short Put | September 23, 2022 60 Put | $0.62 | $0.90 | 0.55 |
| 8/10/2022 | WFC | $44.48 | $43.94 | Short Put | September 23, 2022 41 Put | $0.61 | $0.15 | 0.11 |
| 9/7/2022 | BITO | $11.60 | $12.06 | Covered Call | October 21, 2022 14 Call | $0.40 | $0.39 | 0.72 |
| 9/7/2022 | GDX | $24.12 | $24.00 | Covered Call | October 21, 2022 26 Call | $0.70 | $0.58 | 0.7 |
| Income Trades Portfolio - Open Trades | ||||||||
| Open Date | Close Date | Ticker | Strategy | Trade | Open Price | Closed Price | Profit | Return |
| Income Wheel Portfolio - Closed Trades | ||||||||
| 6/3/2022 | 7/8/2022 | PFE | Short Put | July 8, 2022 50 Put | $0.65 | $0.00 | $0.65 | 1.30% |
| 6/10/2022 | 7/15/2022 | GDX | Short Put | July 15, 2022 29 Put | $0.66 | Assigned at $29 | ($2.75) | -9.48% |
| 6/10/2022 | 7/15/2022 | BITO | Short Put | July 15, 2022 16 Put | $0.82 | Assigned at $16 | ($2.09) | -13.10% |
| 6/22/2022 | 7/21/2022 | WFC | Short Put | July 29, 2022 35 Put | $0.80 | $0.02 | $0.78 | 2.23% |
| 6/30/2022 | 8/10/2022 | KO | Short Put | August 19, 2022 57.5 Put | $0.70 | $0.03 | $0.67 | 1.20% |
| 7/21/2022 | 8/10/2022 | WFC | Short Put | August 19, 2022 39 Put | $0.46 | $0.04 | $0.42 | 1.08% |
| 7/18/2022 | 8/17/2022 | BITO | Covered Call | August 19, 2022 16 Call | $0.50 | $0.03 | $0.47 | 3.59% |
| 7/18/2022 | 8/17/2022 | GDX | Covered Call | August 19, 2022 28 Call | $0.63 | $0.05 | $0.57 | 2.22% |
| 7/11/2022 | 8/23/2022 | PFE | Short Put | August 19, 2022 50 Put | $1.00 | Assigned at $50 | $0.21 | 0.43% |
| 8/17/2022 | 9/7/2022 | BITO | Covered Call | September 23, 2022 16.5 Call | $0.55 | $0.03 | $0.52 | 4.00% |
| 8/17/2022 | 9/7/2022 | GDX | Covered Call | September 23, 2022 28 Call | $0.59 | $0.07 | $0.52 | 2.03% |
| Income Trades Portfolio - Closed Trades | ||||||||
| 7/26/2022 | 8/17/2022 | JPM | Short Put | September 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 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 |
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 | IV | IV Rank | HPMR Oversold - Overbought | |
| ARK Innovation ETF | ARKK | 65.9 | 55.4 | 44.9 |
| ProShares Bitcoin ETF | BITO | 82.4 | 23.8 | 41.5 |
| iShares MSCI Emerging Markets | EEM | 22.9 | 26 | 32.1 |
| iShares MSCI EAFE | EFA | 23.5 | 52.9 | 35.2 |
| iShares MSCI Mexico ETF | EWW | 27.8 | 29.5 | 46.2 |
| iShares MSCI Brazil | EWZ | 43.9 | 53.1 | 36.1 |
| iShares China Large-Cap | FXI | 35.4 | 28.9 | 31.6 |
| VanEck Gold Miners | GDX | 47.2 | 72.2 | 42.4 |
| SPDR Gold | GLD | 18.5 | 22 | 31.6 |
| iShares High-Yield | HYG | 17.2 | 47 | 36.9 |
| SPDR Regional Bank | KRE | 30.3 | 30.8 | 46.5 |
| iShares Silver Trust | SLV | 34.5 | 36.6 | 61.5 |
| iShares 20+ Treasury Bond | TLT | 22.3 | 42.7 | 30.1 |
| United States Oil Fund | USO | 47.9 | 37.6 | 40.1 |
| ProShares Ultra VIX Short | UVXY | 102.8 | 6.4 | 58.7 |
| Barclays S&P 500 VIX ETN | VXX | 68.2 | 10.6 | 63.1 |
| SPDR Biotech | XLB | 29.3 | 67.9 | 28.7 |
| SPDR Energy Select | XLE | 42.1 | 59.5 | 41.4 |
| SPDR Financials | XLF | 28.9 | 40.2 | 38.2 |
| SPDR Utilities | XLU | 23.5 | 55.5 | 36.6 |
| SPDR Retail | XRT | 42.4 | 60.6 | 35.9 |
Stock Watchlist – Weekly Trade Ideas
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| Bank of America | BAC | 38.1 | 50.8 | 47.6 |
| Bristol-Myers | BMY | 26.9 | 38.8 | 57.4 |
| Citigroup | C | 40.2 | 49.3 | 32.6 |
| Costco | COST | 35.6 | 48.4 | 28.8 |
| Cisco Systems | CSCO | 29.7 | 24.3 | 29.4 |
| CVS Health | CVS | 26.9 | 31.2 | 55.5 |
| Dow Inc. | DOW | 40.1 | 80.5 | 23.4 |
| Duke Energy | DUK | 23.2 | 43.7 | 35.8 |
| Ford | F | 49.8 | 28.6 | 35.9 |
| Gilead Sciences | GILD | 34.2 | 24 | 56.1 |
| General Motors | GM | 45.2 | 40 | 48.3 |
| Intel | INTC | 41.8 | 54.6 | 28 |
| Johnson & Johnson | JNJ | 21.4 | 30.9 | 62.1 |
| Coca-Cola | KO | 23.2 | 43.2 | 24.6 |
| Altria Group | MO | 26.9 | 43.8 | 27.4 |
| Merck | MRK | 25 | 17.5 | 53.1 |
| Marvell Tech. | MRVL | 59 | 50.5 | 37 |
| Morgan Stanley | MS | 38.7 | 49.7 | 48.3 |
| Micron | MU | 54.7 | 59.5 | 30.5 |
| Oracle | ORCL | 32.2 | 29.6 | 20.5 |
| Pfizer | PFE | 30.4 | 21.5 | 40 |
| PayPal | PYPL | 53.3 | 37.2 | 44.4 |
| Starbucks | SBUX | 34.3 | 34.6 | 63.7 |
| AT&T | T | 31.3 | 74 | 31.8 |
| Verizon | VZ | 29.1 | 87.3 | 37.3 |
| Walgreens Boots Alliance | WBA | 41.6 | 86 | 26.9 |
| Wells Fargo | WFC | 40.7 | 38 | 47.4 |
| Walmart | WMT | 25.8 | 30.6 | 40.6 |
| Exxon-Mobil | XOM | 40 | 51.7 | 39.3 |
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 46.03. As a result, we could lock in over $1.00 worth of premium and immediately sell more premium. Given that our PFE calls have 33 days left until the October expiration I will most likely buy back our calls over the next few days and immediately sell more calls.
Our probability of success stands at 84.98% and our probability of touch is 30.94%.
Call Side:
Covered Call: GDX October 21, 2022, 28 Calls
Original trade published on 9-7-2022 (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 24.00. Our total break-even on the position currently stands at 26.55, so with GDX currently trading for 24.00 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 October 21, 2022, 26 calls for $0.70. At the time the probability of success of the 26 calls was 72.07%. Now the 26 calls are worth $0.58 and the probability of success stands at 74.29% and the probability of touch is 53.66%.
Call Side:
Covered Call: BITO October 21, 2022, 16.5 Calls
Original trade published on 9-7-2022 (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 14.02.
We recently sold the October 21, 2022, 14 calls for $0.40. At the time the probability of success of the 14 calls was 80.92%. Now the 14 calls stand at 78.46% and the probability of touch is 45.58%. The 14 calls are currently worth $0.39.
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 at 43.94. Our break-even is 40.39. Our probability of success stands at 87.54% and our probability of touch is 24.54%. The 41 puts are currently worth $0.15.
I intend to buy back the 41 puts over the next few days and immediately sell more put premium.
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 at 59.54. Our break-even is 59.38. Our probability of success stands at 44.08%, while our probability of touch is reading 89.42%. Our puts are currently trading for $0.90. Our KO puts expire this week and chances are I will allow these to expire at expiration unless KO rallies into expiration giving us the opportunity to buy them back for a nice profit. If they happen to close below our 60 put strike this Friday, no worries, I’ll be put shares and immediately sell calls against those newly acquired shares early next week.
Put Side:
The next Cabot Options Institute – Income Trader issue will be published on September 26, 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.