I’m going to keep it short today as we enter the first of two holiday-shortened weeks. The focus, as always, continues to be adding a few positions to balance out the mix of options strategies and our deltas. As it stands, we only have an iron condor heading into the January expiration cycle, but if all goes well, we should have an opportunity to add one or two January trades, and with 52 days left until February expiration, I will also be looking to add positions there as well.
But as we enter the final week of the year, let us not forget how wonderful this year was for our Quant Trader service. We look to end the year with 19 out of 20 winning trades for a 125% cumulative return. Given the market environment this year, I couldn’t be more pleased with the results in my first year here at Cabot Wealth. And here’s hoping 2023 is even better!
I hope all of you have a wonderful and safe New Year!
Current Portfolio
| Open Trades | |||||||
| Open Date | Ticker | Strategy | Trade | Open Price | Current Price | Current Probability | Delta |
| 12/7/2022 | IWM | Iron Condor | January 20, 2023 202/198 - 160/156 | $0.70 | $0.32 | 97.78% - 88.29% | 3 |
| Open Date | Closed Date | Ticker | Strategy | Trade | Open Price | Closing Price | Return |
| 6/2/2022 | 6/13/2022 | SPY | Bear Call Spread | July 15, 2022 440/445 | $0.70 | $0.05 | 14.94% |
| 6/8/2022 | 6/17/2022 | XOP | Bear Call Spread | July 15, 2022 190/195 | $0.70 | $0.04 | 15.21% |
| 6/22/2022 | 7/13/2022 | SPY | Bear Call Spread | July 29, 2022 405/410 | $0.75 | $0.35 | 8.70% |
| 6/30/2022 | 7/25/2022 | IWM | Iron Condor | August 19, 2022 195/200 - 145/140 | $0.70 | $0.34 | 7.76% |
| 7/8/2022 | 7/28/2022 | GLD | Bull Put Spread | August 19, 2022 155/150 | $0.60 | $0.16 | 9.65% |
| 7/14/2022 | 8/11/2022 | SPY | Iron Condor | August 19, 2022 417/412 - 335/330 | $0.70 | $4.10 | -68.00% |
| 8/1/2022 | 8/29/2022 | SPY | Bear Call Spread | September 16, 2022 439/444 | $0.70 | $0.07 | 14.42% |
| 8/11/2022 | 8/29/2022 | DIA | Bear Call Spread | September 23, 2022 350/325 | $0.75 | $0.08 | 15.47% |
| 8/11/2022 | 9/8/2022 | IWM | Iron Condor | September 23, 2022 220/215 - 173/168 | $0.77 | $0.57 | 4.17% |
| 9/7/2022 | 9/9/2022 | QQQ | Bull Put Spread | October 21, 2022 260/255 | $0.62 | $0.30 | 6.84% |
| 9/9/2022 | 9/15/2022 | SPY | Bear Call Spread | October 21, 2022 430/435 | $0.75 | $0.25 | 11.11% |
| 9/13/2022 | 10/17/2022 | IWM | Iron Condor | October 21, 2022 208/203 - 163/158 | $0.77 | $0.30 | 10.40% |
| 10/3/2022 | 10/25/2022 | SPY | Bull Put Spread | November 18, 2022 325/320 | $0.54 | $0.09 | 9.89% |
| 10/4/2022 | 11/2/2022 | IWM | Iron Condor | November 18, 2022 198/203 - 143/138 | $0.64 | $0.32 | 6.84% |
| 10/6/2022 | 11/2/2022 | SPY | Bear Call Spread | November 18, 2022 412/416 | $0.43 | $0.28 | 3.90% |
| 11/16/2022 | 11/28/2022 | IWM | Iron Condor | December 16, 2022 205/200 - 162/157 | $0.75 | $0.24 | 11.36% |
| 11/10/2022 | 12/6/2022 | SPY | Bear Call Spread | December 16, 2022 420/425 | $0.65 | $0.14 | 11.36% |
| 12/1/2022 | 12/6/2022 | SPY | Bear Call Spread | January 20, 2023 435/440 | $0.67 | $0.18 | 10.86% |
| 12/13/2022 | 12/15/2022 | SPY | Bear Call Spread | January 20, 2023 430/435 | $0.54 | $0.17 | 7.99% |
Volatility Talk
Nothing new here. For weeks now the volatility gauge has been floating in a fairly tight trading range between roughly 20 to 25. Until it breaks that range, with conviction, I expect we should continue to see some decent premium opportunities, especially if the VIX trades towards the higher side of the range and beyond.
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 27, 2022.
Here are the various levels I use to determine if an ETF is in an oversold or overbought state.
| Very Overbought | greater than or equal to 80.1 |
| Overbought | 60.1 to 80.0 |
| Neutral | 40.1 to 60 |
| Oversold | 20.1 to 40.0 |
| Very Oversold | less 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 | IV | IV Rank | HPMR Oversold - Overbought | |
| ARK Innovation ETF | ARKK | 54.4 | 22.7 | 22.9 |
| Proshares Bitcoin ETF | BITO | 67.6 | 16 | 45.9 |
| SPDR Dow Jones | DIA | 18.4 | 11.1 | 45.2 |
| iShares MSCI Emerging Markets | EEM | 22.3 | 22.3 | 37.5 |
| iShares MSCI EAFE | EFA | 19.1 | 20.7 | 46.3 |
| iShares MSCI Mexico ETF | EWW | 22.1 | 5.1 | 61.1 |
| iShares MSCI Brazil | EWZ | 36.4 | 28.6 | 58.9 |
| iShares China Large-Cap | FXI | 34.9 | 19.9 | 47.8 |
| Vaneck Gold Miners | GDX | 38.3 | 31.7 | 51.5 |
| SPDR Gold | GLD | 14.8 | 2.4 | 52.5 |
| iShares High-Yield | HYG | 11.5 | 23 | 44.2 |
| iShares Russell 2000 | IWM | 24.6 | 10.9 | 39.9 |
| SPDR Regional Bank | KRE | 25.2 | 11 | 42 |
| Vaneck Oil Services | OIH | 43.6 | 14.5 | 60.4 |
| Invesco Nasdaq 100 | QQQ | 26.9 | 25.9 | 30.6 |
| iShares Silver Trust | SLV | 32.4 | 31.1 | 58.5 |
| Vaneck Semiconductor | SMH | 35.6 | 25.1 | 30.3 |
| SPDR S&P 500 | SPY | 21.0 | 20.3 | 39.3 |
| iShares 20+ Treasury Bond | TLT | 23.0 | 44.6 | 28.4 |
| United States Oil Fund | USO | 41.2 | 19 | 66.5 |
| Proshares Ultra VIX Short | UVXY | 95.1 | 10 | 42.2 |
| CBOE Market Volatility Index | VIX | 78.9 | 9.3 | 43.4 |
| Barclays S&P 500 VIX ETN | VXX | 66.2 | 10.5 | 42.7 |
| SPDR Biotech | XLB | 24.1 | 35.5 | 40.3 |
| SPDR Energy Select | XLE | 32.3 | 22.4 | 56.5 |
| SPDR Financials | XLF | 23.1 | 10.5 | 43 |
| SPDR Utilities | XLU | 20.8 | 36.2 | 52.7 |
| SPDR S&P Oil & Gas Explorer | XOP | 41.6 | 21 | 51.9 |
| SPDR Retail | XRT | 33.8 | 15.6 | 37.8 |
Stock Watch List – Trade Ideas
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| Apple | AAPL | 37.0 | 53.6 | 29.4 |
| Bank of America | BAC | 34.2 | 24.8 | 40.5 |
| Bristol-Myers Squibb | BMY | 22.9 | 29.3 | 23.7 |
| Citigroup | C | 35.7 | 25.5 | 40.8 |
| Caterpillar | CAT | 35.5 | 32.7 | 62.7 |
| Comcast | CMCSA | 25.8 | 10.6 | 52.9 |
| Costco | COST | 24.5 | 12.6 | 32.9 |
| Cisco Systems | CSCO | 29.7 | 20 | 39.9 |
| Chevron | CVX | 36.8 | 22.9 | 61.2 |
| Disney | DIS | 19.5 | 12.9 | 37.3 |
| Duke Energy | DUK | 34.2 | 29.6 | 67.5 |
| Fedex | FDX | 23.9 | 13.4 | 57.8 |
| Gilead Sciences | GILD | 41.7 | 20.4 | 31.8 |
| General Motors | GM | 41.9 | 36.4 | 22.8 |
| Intel | INTC | 18.4 | 20.1 | 25.8 |
| Johnson & Johnson | JNJ | 30.4 | 28.1 | 53.7 |
| JP Morgan | JPM | 17.5 | 10.3 | 46.9 |
| Coca-Cola | KO | 21.6 | 10.8 | 59.5 |
| Altria Group | MO | 20.8 | 9.2 | 48.7 |
| Merck | MRK | 33.6 | 27.8 | 69.1 |
| Morgan Stanley | MS | 33.1 | 31.9 | 38.6 |
| Microsoft | MSFT | 26.3 | 27.9 | 36.2 |
| Nextera Energy | NEE | 57.2 | 28.7 | 46.8 |
| Nvidia | NVDA | 26.2 | 13.9 | 30.8 |
| Pfizer | PFE | 47.3 | 17.6 | 53.3 |
| Paypal | PYPL | 29.3 | 12.8 | 27 |
| Starbucks | SBUX | 27.0 | 28.4 | 38.3 |
| AT&T | T | 26.3 | 34.6 | 41.1 |
| Verizon | VZ | 35.8 | 41.2 | 65.6 |
| Walgreens Boots Alliance | WBA | 35.2 | 25.1 | 31.1 |
| Wells Fargo | WFC | 20 | 10.4 | 30.8 |
| Walmart | WMT | 29.1 | 4.7 | 37.5 |
| Exxon Mobil | XOM | 30.8 | 17.8 | 59.7 |
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 174.39 and our iron condor is worth $0.32. Our probability of success stands at 97.86% on the call side and 87.91% on the put side. So far, so good. As I stated over the last few weeks, now we wait while time decay works its magic. As it stands, we have the ability to take off our iron condor for $0.32 and lock in over 50% of the original premium sold. But given the high probabilities at the moment I intend to hold on a bit longer.
Call Side:
Put Side:
The next Cabot Options Institute – Quant Trader issue will be published on
January 3, 2023.