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Quant Trader
Expert-Level Options for Sophisticated Traders

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

Weekly Commentary

Click here to register for the subscriber-exclusive event tomorrow, Thursday, April 20 at noon Eastern Time (ET).

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

Open Trades

Open DateTickerStrategyTradeOpen PriceCurrent PriceCurrent ProbabilityDelta
3/23/2023IWMIron CondorMay 19, 2023 196/191 - 147/142$0.83 $0.34 92.11% - 94.60%-0.05
4/12/2023DIABear CallMay 19, 2023 350/355$0.82 $0.87 80.09%-0.11
Open DateClosed DateTickerStrategy TradeOpen PriceClosing PriceReturn
6/2/20226/13/2022SPYBear Call SpreadJuly 15, 2022 440/445 $0.70 $0.05 14.94%
6/8/20226/17/2022XOPBear Call SpreadJuly 15, 2022 190/195$0.70 $0.04 15.21%
6/22/20227/13/2022SPYBear Call SpreadJuly 29, 2022 405/410$0.75 $0.35 8.70%
6/30/20227/25/2022IWMIron CondorAugust 19, 2022 195/200 - 145/140$0.70 $0.34 7.76%
7/8/20227/28/2022GLDBull Put SpreadAugust 19, 2022 155/150 $0.60 $0.16 9.65%
7/14/20228/11/2022SPYIron CondorAugust 19, 2022 417/412 - 335/330$0.70 $4.10 -68.00%
8/1/20228/29/2022SPYBear Call SpreadSeptember 16, 2022 439/444$0.70 $0.07 14.42%
8/11/20228/29/2022DIABear Call SpreadSeptember 23, 2022 350/325$0.75 $0.08 15.47%
8/11/20229/8/2022IWMIron CondorSeptember 23, 2022 220/215 - 173/168$0.77 $0.57 4.17%
9/7/20229/9/2022QQQBull Put SpreadOctober 21, 2022 260/255$0.62 $0.30 6.84%
9/9/20229/15/2022SPYBear Call SpreadOctober 21, 2022 430/435$0.75 $0.25 11.11%
9/13/202210/17/2022IWMIron CondorOctober 21, 2022 208/203 - 163/158$0.77 $0.30 10.40%
10/3/202210/25/2022SPYBull Put SpreadNovember 18, 2022 325/320 $0.54 $0.09 9.89%
10/4/202211/2/2022IWMIron CondorNovember 18, 2022 198/203 - 143/138$0.64 $0.32 6.84%
10/6/202211/2/2022SPYBear Call SpreadNovember 18, 2022 412/416$0.43 $0.28 3.90%
11/16/202211/28/2022IWMIron CondorDecember 16, 2022 205/200 - 162/157$0.75 $0.24 11.36%
11/10/202212/6/2022SPYBear Call SpreadDecember 16, 2022 420/425$0.65 $0.14 11.36%
12/1/202212/6/2022SPYBear Call SpreadJanuary 20, 2023 435/440$0.67 $0.18 10.86%
12/13/202212/15/2022SPYBear Call SpreadJanuary 20, 2023 430/435$0.54 $0.17 7.99%
12/7/20231/6/2023IWMIron CondorJanuary 20, 2023 202/198 - 160/156$0.70 $0.06 19.00%
1/4/20232/1/2023IWMIron CondorFebruary 17, 2023 200/195 - 154/149$0.65 $2.00 -27.00%
1/6/20232/2/2023SPYBear Call SpreadFebruary 17, 2023 415/420 $0.60 $2.50 -38.00%
2/2/20232/15/2023SPYBear Call SpreadMarch 17, 2023 440/445$0.63 $0.15 10.62%
2/10/20232/22/2023DIABear Call SpreadMarch 31, 2023 355/360$0.70 $0.17 11.86%
2/2/20233/1/2023IWMIron CondorMarch 17, 2023 175/180 - 215/220$0.72 $0.51 4.38%
3/6/20233/13/2023DIABear Call SpreadApril 21, 2023 350/355$0.85 $0.17 15.74%
2/23/20233/28/2023SPYIron CondorApril 21, 2023 435/430 - 350/345$0.80 $0.15 14.94%
3/23/20234/11/2023DIABear Call SpreadApril 21, 2023 338/443$0.62 $2.05 -28.60%

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.

COI_QT_041623_VIX.png

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.

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 Watch List – Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
ARK Innovation ETFARKK48.71.21.7
Proshares Bitcoin ETFBITO63.97.33.7
SPDR Dow JonesDIA16.84.53.9
iShares MSCI Emerging MarketsEEM17.24.11
iShares MSCI EAFEEFA16.52.90.5
iShares MSCI Mexico ETFEWW25.16.91.9
iShares MSCI BrazilEWZ34.59.61.6
iShares China Large-CapFXI30.00.11.3
Vaneck Gold MinersGDX38.113.912.4
SPDR Gold GLD18.447.735.3
iShares High-YieldHYG11.82.30.8
iShares Russell 2000IWM24.713.91.8
SPDR Regional BankKRE47.936.328.4
Vaneck Oil ServicesOIH43.018.99.5
Invesco Nasdaq 100QQQ24.10.85.2
iShares Silver TrustSLV33.843.124.2
Vaneck SemiconductorSMH32.35.44.3
SPDR S&P 500 SPY 18.41.33.9
iShares 20+ Treasury BondTLT20.815.34.9
United States Oil FundUSO35.913.43.3
Proshares Ultra VIX ShortUVXY104.116.117.8
CBOE Market Volatility IndexVIX84.123.230.9
Barclays S&P 500 VIX ETNVXX69.715.918.3
SPDR BiotechXLB22.115.29.6
SPDR Energy Select XLE30.014.80.9
SPDR FinancialsXLF26.131.814.1
SPDR UtilitiesXLU20.37.80.2
SPDR S&P Oil & Gas ExplorerXOP39.814.60.1
SPDR Retail XRT31.419.816.6

Stock Watch List – Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL29.012.662.8
Bank of AmericaBAC37.63367.8
Bristol-Myers SquibbBMY21.10.864.5
CitigroupC27.96.678.8
CaterpillarCAT34.433.857.3
ComcastCMCSA31.81257.6
CostcoCOST21.60.447.5
Cisco SystemsCSCO23.59.843.7
ChevronCVX25.43.377.4
DisneyDIS36.216.555.3
Duke EnergyDUK24.819.349.1
FedexFDX25.42.665.9
Gilead SciencesGILD30.032.758.8
General MotorsGM43.731.739.7
IntelINTC44.339.453.7
Johnson & JohnsonJNJ18.32.778.3
JP MorganJPM23.03.683
Coca-ColaKO16.60.674.1
Altria GroupMO21.510.756.1
MerckMRK24.329.782.9
Morgan StanleyMS31.527.858.4
MicrosoftMSFT30.020.354.4
Nextera EnergyNEE30.015.556.4
NvidiaNVDA43.52.549.2
PfizerPFE26.79.450.5
PaypalPYPL46.115.464.7
StarbucksSBUX31.52882.2
AT&TT27.720.174
VerizonVZ23.72855.8
Walgreens Boots AllianceWBA26.620.150.7
Wells FargoWFC30.418.566.1
WalmartWMT19.34.356.3
Exxon MobilXOM2714.469.2

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:

COI_QT_041623_IWM_bearcall.png

Put Side:

COI_QT_041623_IWM_bullput.png

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:

COI_QT_041623_DIA_bearcall.png

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.

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.