Please ensure Javascript is enabled for purposes of website accessibility
Quant Trader
Expert-Level Options for Sophisticated Traders

Cabot Options Institute – Quant Trader Issue: January 23, 2023

We currently have two open positions and, thankfully, both currently have a high probability of success. My hope is that we can start to look at taking off both trades for profits towards the latter part of the week, but we need a bit of cooperation from Mr. Market.

My goal this week is to start adding positions for the March expiration cycle. As always, I want to add, at minimum, a bear call, bull put and iron condor. If I can get all three off this week, I would be incredibly pleased, but, as always, I’m not going to force it.

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
1/4/2023IWMIron CondorFebruary 17, 2023 200/195 - 154/149$0.65 $0.68 82.90% - 98.03%-10
1/6/2023SPYBear CallFebruary 17, 2023 415/420$0.60 $0.70 84.80%-6
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%

Volatility Talk

Last week, the VIX finally pushed outside of the 20 to 35 range that we’ve witnessed for months. But the move only lasted for a few days as the VIX quickly made its way back above 20 on Wednesday and was able to maintain that level through the rest of the week. As long as we stay above the 15 level, we should be able to sell premium in all of the major indices fairly easily. And if we dip below 15, well, we will start to dig deeper into our watch list for premium selling opportunities. I don’t see that happening anytime soon, but I’ve been wrong many, many times before.

COI_QT_012323_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 January 23, 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 ETFARKK49.85.565.6
Proshares Bitcoin ETFBITO68.21386.9
SPDR Dow JonesDIA17.410.645.4
iShares MSCI Emerging MarketsEEM19.13.877.7
iShares MSCI EAFEEFA18.36.279.1
iShares MSCI Mexico ETFEWW22.84.478
iShares MSCI BrazilEWZ38.030.755.3
iShares China Large-CapFXI30.77.870.7
Vaneck Gold MinersGDX37.36.965
SPDR Gold GLD16.310.572.3
iShares High-YieldHYG10.85.860.1
iShares Russell 2000IWM22.86.962.8
SPDR Regional BankKRE24.17.555
Vaneck Oil ServicesOIH40.14.459
Invesco Nasdaq 100QQQ24.86.566.5
iShares Silver TrustSLV31.718.854.7
Vaneck SemiconductorSMH32.9666.7
SPDR S&P 500 SPY 19.69.759.7
iShares 20+ Treasury BondTLT20.926.552.1
United States Oil FundUSO37.70.669.9
Proshares Ultra VIX ShortUVXY104.814.628.9
CBOE Market Volatility IndexVIX81.414.144.1
Barclays S&P 500 VIX ETNVXX69.412.529.6
SPDR BiotechXLB22.63261
SPDR Energy Select XLE29.17.966.2
SPDR FinancialsXLF20.71153
SPDR UtilitiesXLU20.014.834.2
SPDR S&P Oil & Gas ExplorerXOP38.14.968.6
SPDR Retail XRT31.21.260.6

Stock Watch List – Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL35.644.572.4
Bank of AmericaBAC28.112.848.9
Bristol-Myers SquibbBMY23.429.866.8
CitigroupC28.15.580.3
CaterpillarCAT35.133.452.2
ComcastCMCSA38.844.674.8
CostcoCOST24.13.155.2
Cisco SystemsCSCO31.030.834.2
ChevronCVX29.5663.7
DisneyDIS40.329.284.3
Duke EnergyDUK23.829.330.1
FedexFDX29.03.255.3
Gilead SciencesGILD30.741.430.8
General MotorsGM42.121.240.1
IntelINTC49.257.656.7
Johnson & JohnsonJNJ21.532.816.8
JP MorganJPM24.710.840.7
Coca-ColaKO22.429.629.5
Altria GroupMO23.616.543.4
MerckMRK23.92743.1
Morgan StanleyMS26.92.772.5
MicrosoftMSFT33.532.158.6
Nextera EnergyNEE31.035.330.8
NvidiaNVDA53.018.869.9
PfizerPFE30.729.719.6
PaypalPYPL56.133.862.3
StarbucksSBUX32.324.553.5
AT&TT31.248.654.1
VerizonVZ30.153.941.2
Walgreens Boots AllianceWBA28.712.738.5
Wells FargoWFC27.98.864
WalmartWMT2218.636.8
Exxon MobilXOM30.48.163.7

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Iron Condor: IWM February 17, 2023, 200/195 calls – 154/149 puts
Original trade published on 1-4-2023 (click to see original alert)

Background: At the time of the trade, IWM was trading for 180.49. We sold the February 17, 2023, IWM 200/195 – 154/149 iron condor for $0.60. The expected range was 164 to 189.

Current Thoughts: IWM is currently trading for 185.12 and our iron condor is worth $0.67. Our probability of success stands at 84.03% on the call side and 98.10% on the put side.

Obviously, the concern, as it stands, is the call side of the trade. We still have a 84.03% probability of success. But, if IWM continues to surge higher we will have to consider an adjustment or simply take off the trade for a small loss and move on to the next opportunity. If we do see a pullback over the coming week, we should have an opportunity to take the trade off the table for a decent profit.

Call Side:

COI_QT_012323_IWM_bearcall.png

Put Side:

COI_QT_012323_IWM_bulput.png

Bear Call: SPY February 17, 2023, 415/420 Bear Call Spread
Original trade published on 1-6-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 386.20. We sold the February 17, 2023, SPY 415/420 bear call spread for $0.60. The expected range was 364 to 407.

Current Thoughts: SPY is currently trading for 396.14 and our bear call spread is worth $0.70. Our probability of success stands at 84.98%. We still have a decent margin of error on the trade and our probability of success is hovering around 85% so we aren’t concerned about the trade … yet. However, if SPY continues to push higher over the next week or so, we will need to make an adjustment or simply take the trade off the table.

However, if we see the opposite and SPY pushes lower, towards the 390 area, there is a good chance we can take the profit of the table for a decent return.

Call Side:

COI_QT_012323_SPY_bearcall.png


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

January 30, 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.