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Quant Trader
Expert-Level Options for Sophisticated Traders

Cabot Options Institute – Quant Trader Issue: January 30, 2023

Weekly Earnings Commentary

I wanted to start adding a few March positions last week, but decided to push them off towards the beginning of this week. I intend on adding at least two, if not three, March expiration trades this week as we are only 46 days away from the March 17, 2023 expiration cycle.

As for our current positions, our deltas are leaning towards the bearish side of things, so I would prefer to sell a bull put spread or two to balance out our deltas, but it’s tough adding a bull put spread with a market so overbought on a short-term basis.

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 $1.11 72.39% - 99.17%-14
1/6/2023SPYBear CallFebruary 17, 2023 415/420$0.60 $1.43 71.51%-8
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

The VIX fell back again this week and now sits at the lows hit just a few weeks ago. The question is, will we see a continued push lower or will the oversold conditions in the VIX mean-revert and we see another pop higher?

We are seeing overbought conditions in the overall market, while hitting short-term oversold extremes in the VIX. Typically, this type of set-up leads to, at minimum, a short-term pullback in the market.

VIX_COIQT.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 30, 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 ETFARKK48.25.179.3
Proshares Bitcoin ETFBITO61.88.283.5
SPDR Dow JonesDIA16.2461.7
iShares MSCI Emerging MarketsEEM17.85.976
iShares MSCI EAFEEFA18.05.677.4
iShares MSCI Mexico ETFEWW21.612.675
iShares MSCI BrazilEWZ37.62555.9
iShares China Large-CapFXI28.04.175.2
Vaneck Gold MinersGDX35.43.754
SPDR Gold GLD15.13.160.3
iShares High-YieldHYG9.6455.4
iShares Russell 2000IWM21.72.273.9
SPDR Regional BankKRE22.84.963.1
Vaneck Oil ServicesOIH37.22.661
Invesco Nasdaq 100QQQ24.57.480.1
iShares Silver TrustSLV29.66.745
Vaneck SemiconductorSMH32.86.372.5
SPDR S&P 500 SPY 19.62.773.7
iShares 20+ Treasury BondTLT19.5852.8
United States Oil FundUSO36.3247.8
Proshares Ultra VIX ShortUVXY102.821.216.7
CBOE Market Volatility IndexVIX79.126.732.3
Barclays S&P 500 VIX ETNVXX70.913.418.2
SPDR BiotechXLB19.812.663.2
SPDR Energy Select XLE27.85.159.2
SPDR FinancialsXLF18.4368.8
SPDR UtilitiesXLU18.619.335.6
SPDR S&P Oil & Gas ExplorerXOP36.12.962.5
SPDR Retail XRT28.6574.8

Stock Watch List – Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL32.13484.3
Bank of AmericaBAC24.62.670.5
Bristol-Myers SquibbBMY21.321.145.3
CitigroupC25.21.471.7
CaterpillarCAT32.723.975.3
ComcastCMCSA26.56.559
CostcoCOST24.24.773.6
Cisco SystemsCSCO29.12662.1
ChevronCVX26.00.749.2
DisneyDIS36.721.190
Duke EnergyDUK22.617.336.4
FedexFDX26.81.461.3
Gilead SciencesGILD28.737.640.8
General MotorsGM39.218.369.9
IntelINTC35.812.737.8
Johnson & JohnsonJNJ17.28.725
JP MorganJPM21.51.764.2
Coca-ColaKO20.019.339.3
Altria GroupMO24.610.431.4
MerckMRK22.827.820.1
Morgan StanleyMS23.92.169
MicrosoftMSFT26.58.969.4
Nextera EnergyNEE29.726.620.2
NvidiaNVDA57.330.184.8
PfizerPFE28.128.717.9
PaypalPYPL54.430.373.4
StarbucksSBUX31.727.875
AT&TT22.44.962.6
VerizonVZ22.417.954.9
Walgreens Boots AllianceWBA256.260
Wells FargoWFC25.82.575.7
WalmartWMT26.342.253.3
Exxon MobilXOM28.85.462

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 189.58 and our iron condor is worth $1.11. Our probability of success stands at 74.71% on the call side and 99.15% on the put side.

Obviously, the concern, as it stands, is the call side of the trade. We still have a 74.71% probability of success. But, if IWM continues to surge higher this week 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 decent pullback over the coming week, possibly around the 183-185 area, we should have an opportunity to take the trade off the table for a decent profit.

Call Side:

COI_QT_013023_IWM_bearcall.png

Put Side:

COI_QT_013023_IWM_bullput.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 405.68 and our bear call spread is worth $1.43. Our probability of success stands at 73.89%. We still have a decent margin of error on the trade and our probability of success is hovering around 75% so we aren’t concerned about the trade … yet. However, if SPY continues to push higher this week, we will need to make an adjustment or simply take the trade off the table.

If we see the opposite and SPY pushes lower, towards the 395-400 area, there is a good chance we can take the profit of the table for a decent return.

Call Side:

COI_QT_013023_SPY_bearcall.png


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

February 6, 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.