Cabot Options Institute – Quant Trader Issue: April 10, 2023

Weekly Commentary

Nothing has changed from last week. We currently have two open positions, a bear call spread in DIA and an iron condor in IWM. Our deltas continue to be skewed towards the bearish side of things, so we will need to balance out our deltas by adding a bull put spread or some other bullish leaning strategy…potentially a bullish leaning iron condor? So, the focus this week, like last week, will be adding some positive deltas to the mix to bring the portfolio closer to a delta-neutral state. My focus will be on expiration cycles ranging from 35 to 60 days until expiration.

If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

Current Portfolio

Volatility Talk

The investor’s fear gauge is once again back down testing what has been an incredibly strong level of support, the 18 handle.

In the recent past, as seen in the chart below, shortly after the VIX hits 18 we quickly see a bounce. If you couple the action in the VIX with the price action of most of the major indices this makes perfect sense as several of the major indices have recently pushed into a short-term overbought state. When the VIX hits support coupled with a short-term overbought state in the major indices it is typical to see a short-term reprieve via either a pullback or a short period of consolidation.

Weekly High-Probability Mean Reversion Indicator

Below is my watch list of ETFs and stocks with the most liquid options headed into the week of April 10, 2023.

Here are the various levels I use to determine if an ETF is in an oversold or overbought state.

Each week I also include the current implied volatility (IV) and IV Rank. I look for an IV rank above 40, preferably higher.

ETF Watch List – Trade Ideas

Stock Watch List – Trade Ideas

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Iron Condor: IWM May 19, 2023, 196/191 calls – 147/142 puts

Original trade published on 3-23-2023 (click to see original alert)

Background: At the time of the trade, IWM was trading for 172.95. We sold the May 19, 2023, IWM 196/191 – 147/142 iron condor for $0.83. The expected range or move was 159 to 187.

Current Thoughts: Our position is currently in great shape. As you can see in the images below, our probabilities of success are over 92% on both sides and the price of our iron condor sits at $0.45. So, we could take a decent profit off the table and I expect to do so if we see the price of our iron condor dip slightly more, preferably around $0.35.

Call Side:

Put Side:

Bear Call: DIA April 21, 2023, 338/343 calls

Original trade published on 3-23-2023 (click to see original alert)

Background: At the time of the trade, DIA was trading for 323.20. We sold the April 21, 2023, DIA 338/343 bear call spread for $0.62. The expected range or move was 310 to 336.

Current Thoughts: We only have two weeks left in our DIA bear call. My preference, as many of you already know, would be to get out of the trade completely. Gamma risk becomes a major factor as we get closer and closer to expiration so the goal this week is to take off our DIA, if possible. Of course, Mr. Market will dictate our actions. Hopefully we will have an opportunity to take a profit off the table, but if we have to take off our trade for a loss we will do so. Remember, in the world of high-probability trading, risk management is a key factor in long-term success, so it is imperative that we stick to the mechanics and not allow emotions to bleed into our trading decisions.

Call Side:

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

The next Cabot Options Institute – Quant Trader issue will be published on

April 17, 2023.