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Quant Trader
Expert-Level Options for Sophisticated Traders

April 21, 2023

Cabot Options Institute Quant Trader – Alert (SPY, DIA)

SPDR S&P 500 ETF (SPY)

Okay, it’s time to start selling some more premium.

With the SPDR S&P 500 ETF (SPY) trading for 412.50, I want to place a short-term iron condor going out 56 days. As always, my intent is to take off the trade well before the June 16, 2023, expiration date.

IV: 18.9%
IV Rank: 3.1
Expected Move (Range): The expected move (range) for the June 16, 2023, expiration cycle is from 393 to 432.

Call Side:

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Put Side:

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The Trade

Simultaneously:

  • Sell to Open SPY June 16, 2023, 435 call strike
  • Buy to Open SPY June 16, 2023, 440 call strike
  • Sell to Open SPY June 16, 2023, 365 put strike
  • Buy to Open SPY June 16, 2023, 360 put strike … for a total of $0.95. (As always, the price of the spread can vary from the time of the alert, so please adjust accordingly if you wish to take on a position.)

*Our margin of error is roughly 5.5% to the upside and more than 11.5% to the downside over the next 56 days.
Delta of spread: -0.06
Probability of Profit: 85.41% (upside) – 89.75% (downside)
Probability of Touch: 28.00% (call side) – 20.53% (put side)
Total net credit: $0.95
Total risk per spread: $405
Max return: 23.5%

Risk Management
Since we know how much we stand to make and lose prior to order entry we can precisely define our position size on every trade we place. Position size is the most important factor when managing risk, so keeping each trade at a reasonable level (I use 1% to 5% per trade, smaller accounts tend to use a higher percentage, closer to 10%) allows not only the Law of Large Numbers to work in your favor … it also allows you to sleep well at night.

I tend to set a stop-loss that sits 1 to 2 times my original credit. Since I’m selling the 440/435 – 365/360 iron condor for roughly $0.95, if my iron condor reaches $1.90 to $2.85, I will exit the trade. As always, I will keep you updated on the status of the position as it progresses and send any necessary updates.

Dow Jones ETF (DIA)

With 28 days left until expiration, I’ve decided to go ahead and lock in profits in our DIA trade and look for other potential opportunities. If you choose to hold on, which I’m certainly not opposed to, please make sure that you understand the risks at hand.

The Trade

Simultaneously:

Buy to close DIA May 19, 2023, 350 call strike
Sell to close DIA May 19, 2023, 355 call strike for a total of $0.44 (As always, the price of the spread will vary, so please adjust accordingly.)

As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.

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.