Cabot Options Institute – Quant Trader Issue: April 3, 2023

Weekly Commentary

We currently have two open positions, a bear call spread in DIA and an iron condor in IWM. Our deltas are currently 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. So the focus this week will be adding some positive deltas to the mix to bring the portfolio closer to a delta-neutral state.

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

Current Portfolio

Volatility Talk

After testing the 30 handle during the middle of March, the VIX is now approaching what has been a strong area of support, the 18 handle. We’ve seen the VIX push towards 18 for four straight months and each and every time we see the market respond with an almost immediate pullback. Now that the VIX is back down at 18 while the market is concurrently in a short-term overbought state, I think we might see a near-term reprieve over the next week or so. Of course, only time will tell.

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 3, 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: We are a few weeks into our IWM iron condor and so far, so good. Yes, we’ve seen the Russell 2000 rally for the last few weeks, but our short call strike (191) still has close to an 82% probability of success. Moreover, our margin of error on the call side remains at 7.1%. With 46 days left until expiration time decay will begin to truly accelerate which bodes well for our iron condor, especially if we see a short-term reprieve over the next week or so.

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: What a difference a week makes! DIA rallied hard last week and now the 338 strike of our bear call spread sits at a 65.66% probability of success and the spread is worth $1.20. We will need to tread carefully with this one. While we never want to take a loss, sometimes it is the prudent move and if DIA continues to trend higher this week we will be forced to exit the trade. That being said, DIA is currently sitting in a short-term overbought state and historically when we see this type of setup a short-term reprieve looks likely. DIA currently sits 1.6% below the short strike of 338.

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 10, 2023.