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

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.

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.

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 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:

Put Side:

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

December 27, 2022.