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Quant Trader
Expert-Level Options for Sophisticated Traders

Cabot Options Institute – Quant Trader Issue: December 19, 2022

The sell-off late last week led to us taking off our SPY bear call spread after just three days. We locked in 8% on the bear call spread which added to our cumulative total return of better than 112% since starting the portfolio back in early June.

In the last three weeks alone we’ve locked in returns of 11.4%, 10.9%, 11.4% and 8.0%. Now we are left with just one open position, an iron condor in IWM, which at the moment looks to be a profitable trade.

My focus this week is to add a few more positions to the mix. I would be more than pleased to add at least one, if not two more trades for the January 20, 2023 expiration cycle. The preference would be to add a bull put spread and a bear call spread to keep our deltas in line.

Current Portfolio

Open Trades
Open DateTickerStrategyTradeOpen PriceCurrent PriceCurrent ProbabilityDelta
12/7/2022IWMIron CondorJanuary 20, 2023 202/198 - 160/156$0.70 $0.49 96.98% - 83.40%3
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%

Volatility Talk

After the VIX hit the 19-20 support level two weeks ago, the volatility index continued to rally, but strangely halted the push higher when the underlying security neared 23. I say strange because as the market was experiencing a fairly deep and broad-based sell-off, the VIX actually didn’t respond. In fact, it moved lower. Typically, when the market is selling off, investors buy protection, and the increased demand inflates volatility. This didn’t happen. Is it a bullish sign going forward, or just a precursor to a deeper sell-off as we head into the new year and beyond? This week should give us some much-needed insights to help answer the aforementioned question.

COI_QT_121922_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 December 19, 2022.

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 ETFARKK56.628.331
Proshares Bitcoin ETFBITO75.016.242.7
SPDR Dow JonesDIA20.020.829.6
iShares MSCI Emerging MarketsEEM21.49.634.1
iShares MSCI EAFEEFA19.819.134.2
iShares MSCI Mexico ETFEWW23.611.725.1
iShares MSCI BrazilEWZ41.339.915.1
iShares China Large-CapFXI37.329.549.3
Vaneck Gold MinersGDX38.436.545.5
SPDR Gold GLD14.61.554.5
iShares High-YieldHYG12.325.540.7
iShares Russell 2000IWM26.220.727.3
SPDR Regional BankKRE26.710.716.3
Vaneck Oil ServicesOIH45.019.643.6
Invesco Nasdaq 100QQQ27.228.131.7
iShares Silver TrustSLV32.52957
Vaneck SemiconductorSMH36.02837.5
SPDR S&P 500 SPY 22.328.229.4
iShares 20+ Treasury BondTLT21.535.854.7
United States Oil FundUSO42.822.741.5
Proshares Ultra VIX ShortUVXY93.06.649
CBOE Market Volatility IndexVIX89.720.651.8
Barclays S&P 500 VIX ETNVXX62.16.849.5
SPDR BiotechXLB24.738.633.5
SPDR Energy Select XLE34.032.735.3
SPDR FinancialsXLF24.615.225
SPDR UtilitiesXLU21.431.641.6
SPDR S&P Oil & Gas ExplorerXOP44.628.835.8
SPDR Retail XRT35.119.122.3

Stock Watch List – Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL37.153.525.1
Bank of AmericaBAC35.730.216.2
Bristol-Myers SquibbBMY22.936.410.8
CitigroupC36.728.132.3
CaterpillarCAT31.12151.5
ComcastCMCSA35.63338.9
CostcoCOST27.917.517.7
Cisco SystemsCSCO26.017.339.2
ChevronCVX31.633.632.6
DisneyDIS36.123.429.6
Duke EnergyDUK21.119.746.5
FedexFDX43.455.539.3
Gilead SciencesGILD26.227.143.8
General MotorsGM40.016.920.5
IntelINTC38.727.223.3
Johnson & JohnsonJNJ18.617.740
JP MorganJPM32.033.930.4
Coca-ColaKO19.017.140
Altria GroupMO22.51449.8
MerckMRK22.324.349.7
Morgan StanleyMS32.423.435.7
MicrosoftMSFT32.027.541.1
Nextera EnergyNEE27.427.240.2
NvidiaNVDA55.426.644.9
PfizerPFE27.82047.7
PaypalPYPL47.518.517.9
StarbucksSBUX29.713.234.8
AT&TT25.11631.9
VerizonVZ26.336.938.8
Walgreens Boots AllianceWBA35.742.426.7
Wells FargoWFC35.625.816.3
WalmartWMT20.514.423.9
Exxon MobilXOM3220.636.7

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Iron Condor: IWM January 20, 2023, 202/198 calls – 160/156 puts
Original trade published on 12-7-2022 (click to see original alert)

Background: At the time of the trade, IWM was trading for roughly 180.49. We sold the January 20, 2023, IWM 202/198 – 160/156 iron condor for $0.70. The expected range was 168 to 193.

Current Thoughts: IWM is currently trading for 174.37 and our iron condor is worth $0.49. Our probability of success stands at 99.96% on the call side and 83.58% on the put side. So far, so good. As I stated last week, now we wait while time decay works its magic. As always, if we have an opportunity to take off over 50% of the original premium sold we will go ahead and do so. But with 32 days left until expiration, realistically we still have at least a few weeks before we can start thinking about taking any sort of profit off the table.

Call Side:

COI_QT_121922_IWM_bearcall.png

Put Side:

COI_QT_121922_IWM_bullput.png


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

December 27, 2022.

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.