Cabot Options Institute – Quant Trader Issue: April 17, 2023

Weekly Commentary

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The goal this week is to add some positive deltas to the portfolio. We took a loss in our DIA bear call spread early last week, which was our first loss since February 2. And while the small setback should be expected (losses will occur) we continue to progress higher as the overall returns remain just under 100%, and remember, this is during what has been one of the more volatile periods in market history, a year when the major indexes were deeply entrenched in negative territory.

The key to continued success is not to change our approach, but instead stick with what got us here: selling premium using a high-probability approach while simultaneously keeping our risk management techniques (position size, stop-loss) at the forefront. By maintaining consistency, the law of large numbers will continue to lead the way to long-term success and that’s what truly matters.

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

Current Portfolio

Volatility Talk

The VIX has finally broken what had been strong support. The break comes with low IV ranks across the board and short-term overbought readings, both of which typically lead to a short-term reprieve going forward. The VIX is one of the more reliable mean-reversion indicators and when it hits short-term oversold levels a short-term bounce in the investor’s fear gauge looks likely. And when you add the fact that the overall market is overbought with low IV ranks across the board, well, it seems as though sentiment is leaning, at least temporarily, too heavy to one side. We also should remember this bear market has had four double-digit rallies and the latest one is looking eerily similar to the previous three.

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 17, 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 91%, almost 92% on the call side and over 96% on the put side. As a result, with 33 days left until expiration the price of our iron condor sits at $0.35. With 33 days left until expiration and an opportunity to take off our trade for a healthy profit, there is a good chance I take off the trade and lock in a nice, double-digit return.

Call Side:

Put Side:

Bear Call: DIA May 19, 2023, 350/355 calls

Original trade published on 4-12-2023 (click to see original alert)

Background: At the time of the trade, DIA was trading for 337.40. We sold the May 19, 2023, DIA 350/355 bear call spread for $0.82. The expected range or move was 321 to 350.

Current Thoughts: Our probability of success at the time of the trade was 81.32%; now it stands at 79.99%. We are early in the trade, but if we see DIA push lower and out of its current short-term overbought state we should have an opportunity to take off our trade for a nice profit. Our DIA bear call spread is currently trading for $0.87.

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 24, 2023.