I’m going to keep the weekly commentary section rather short today. My hope is that everyone has had the opportunity to watch our latest subscriber-exclusive webinar from Wednesday as I covered a lot of ground, including closed trades, open trades and potential upcoming trades. We also discussed the ins and outs of bear call spreads and covered the importance of risk management.

Cabot Options Institute – Quant Trader Issue: July 15, 2022

We did manage to lock in another gain earlier this week, this time in our SPY 405/410 bear call spread. Admittedly, it was probably a bit premature, but I decided to lock in an 8.7% return on the trade. This makes our third winning trade since we initiated our first trade back in early June. Our other two trades returned 14.94% and 15.21%. If all goes well over the next week or so, we should have a few more to add on to our list of winning trades.

Current Portfolio

Open Trades
Open Date	Ticker	Strategy	Trade	Open Price	Current Price	Current Return	Current Probability	Delta
6/30/2022	IWM	Iron Condor	8/19/22 195/200 - 145/140	$0.70	$0.36	7.30%	96.94% (call) - 90.05% (put)	-1
7/8/2022	GLD	Bull Put Spread	8/19/22 155/150	$0.60	$0.93	-7.07%	68.84%	14
7/14/2022	SPY	Iron Condor	8/19/22 417/412 - 335/330	$0.70	$0.67	2.88%	92.20% (call) - 88.88% (put)	-2

Closed Trades
Open Date	Closed Date	Ticker	Strategy	Trade	Open Price	Closing Price	Return
6/2/2022	6/13/2022	SPY	Bear Call Spread	7/15/22 440/445	$0.70	$0.05	14.94%
6/8/2022	6/17/2022	XOP	Bear Call Spread	7/15/22 190/195	$0.70	$0.04	15.21%
6/22/2022	7/13/2022	SPY	Bear Call Spread	7/15/22 405/410	$0.75	$0.35	8.70%

Volatility Talk
The investor’s fear gauge, otherwise known as the VIX, hasn’t moved much over the past few weeks as it continues to hover around 26. While we’ve seen some vacillation in the volatility index, it’s been contained in a fairly tight range of 24 to 29.

As you can see in the chart above, since 2022 began, we’ve seen the investor’s fear gauge continually rise, setting higher lows throughout the year. Volatility continues to define the market in 2022, and until fears subside on a potential recession, rising inflation and ongoing geopolitical turmoil I don’t expect much to change.

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 July 4, 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

We are starting to see a few serious candidates make an appearance. ARKK, FXI, and QQQ are all nearing an overbought state, while GLD and SLV are extremely oversold. Both ARKK and QQQ have above average IV ranks which means they are probably the best bets from a premium standpoint, but I think I would like to see a little more of a push higher before possibly selling some more premium.

	Ticker Symbol	IV	IV Rank	HPMR Oversold - Overbought
ARK Innovation ETF	ARKK	72.3	65	46.9
Proshares Bitcoin ETF	BITO	97.9	42.5	48.9
SPDR Dow Jones	DIA	23.6	49.4	35.6
iShares MSCI Emerging Markets	EEM	28	44.9	26.4
iShares MSCI EAFE	EFA	25.8	46.1	26.5
iShares MSCI Mexico ETF	EWW	28.7	43.9	22.8
iShares MSCI Brazil	EWZ	39.9	52.5	26
iShares China Large-Cap	FXI	36.2	30.6	25.4
Vaneck Gold Miners	GDX	47.5	83.7	27.1
SPDR Gold	GLD	19.8	28.9	15.6
iShares High-Yield	HYG	16	49.1	50.8
iShares Russell 2000	IWM	30.9	54	37.9
SPDR Regional Bank	KRE	32.6	37.1	26.8
Vaneck Oil Services	OIH	61.6	98.6	24.1
Invesco Nasdaq 100	QQQ	32.8	64	47.3
iShares Silver Trust	SLV	33.9	32.7	18.6
Vaneck Semiconductor	SMH	41.2	57.8	56.8
SPDR S&P 500	SPY	27.2	52.8	38.1
iShares 20+ Treasury Bond	TLT	22.9	59.3	56.3
United States Oil Fund	USO	55	44.6	31.4
Proshares Ultra VIX Short	UVXY	105.5	9.2	41
CBOE Market Volatility Index	VIX	90.6	5.9	44.6
Barclays S&P 500 VIX ETN	VXX	66.9	5.8	41.5
SPDR Biotech	XLB	31.7	68.2	22.1
SPDR Energy Select	XLE	47.2	79.7	28.1
SPDR Financials	XLF	31	49.6	26.2
SPDR Utilities	XLU	22.1	48.1	48.8
SPDR S&P Oil & Gas Explorer	XOP	57.9	49.3	31.8
SPDR Retail	XRT	44.1	65.2	39.1

Stock Watch List- Trade Ideas

Earnings are upon us, which is why some of the IV ranks among our stock watch list are high. That being said, we are starting to see some decent overbought readings in a variety of stocks including AAPL, COST, PFE, MSFT, SBUX, WMT and a few others. I definitely don’t want to open a trade prior to earnings, but I certainly will be looking for a few opportunities if we see some of the aforementioned names hit overbought extremes.

	Ticker Symbol	IV	IV Rank	HPMR Oversold - Overbought
Apple	AAPL	39.8	66.7	69.9
Bank of America	BAC	42.3	56.8	24
Bristol-Myers Squibb	BMY	26.8	43.2	28.2
Citigroup	C	42.9	63.5	23.4
Caterpillar	CAT	43.6	93.7	26.1
Comcast	CMCSA	40.1	65.4	46.5
Costco	COST	30.8	37.6	74.4
Cisco Systems	CSCO	32.6	64.5	35.9
Chevron	CVX	44.8	94.9	23.3
Disney	DIS	45.4	51.1	28.1
Duke Energy	DUK	27.3	95.8	52.4
Fedex	FDX	40.9	48.3	28.6
Gilead Sciences	GILD	33.7	35.5	41.2
General Motors	GM	56.3	76.7	42.1
Intel	INTC	51.3	89.9	51.8
Johnson & Johnson	JNJ	21.9	48.4	39.3
JP Morgan	JPM	35.6	49.5	23.7
Coca-Cola	KO	27.5	68.6	41.3
Altria Group	MO	38.3	94.9	36.3
Merck	MRK	27.5	42.2	63.8
Morgan Stanley	MS	39.4	50	35.4
Microsoft	MSFT	38.2	58.4	38.4
Nextera Energy	NEE	34.7	67.1	61.1
Nvidia	NVDA	59	38.7	46.1
Pfizer	PFE	34.4	51.9	43.7
Paypal	PYPL	78.3	88	35.7
Starbucks	SBUX	41.2	77.8	55.5
AT&T	T	31.5	69.4	33.9
Verizon	VZ	24.3	54.8	43.8
Walgreens Boots Alliance	WBA	33.4	52	28.7
Wells Fargo	WFC	47.1	58.5	34.9
Walmart	WMT	27.9	78.7	77.5
Exxon Mobil	XOM	47.3	86.5	34.4

Weekly Trade Discussion: Open Positions

Iron Condor: SPY August 19, 2022, 417/412 calls – 335/330 puts
Original trade published on 7-14-2022 (click to see original alert)

Background: The options in SPY continue to trade at inflated levels. With the VIX still hovering around 26 and the IV rank in SPY reading 79.76, I decided to sell the August 19 SPY 417/412 – 335/330 iron condor spread with 36 days until expiration.

At the time of the trade SPY was trading for 375.87. We sold the August 19, 2022, SPY 417/412 – 335/330 iron condor spread for $0.70 with a 93.08% (upside) to 87.66% (downside) probability of success. The probability of touch was 14.05% (upside) to 24.09% (downside). The expected range was 352 to 399.

Current Thoughts
We just opened the trade yesterday so there really isn’t much to discuss at the moment. I continue to take advantage of the inflated levels of options premium by going with an incredibly wide range for my iron condors. Hopefully, our early success continues. I’ll start to discuss more on our SPY iron condor as the trade progresses.

Iron Condor: IWM August 19, 2022, 195/200 – 145/140
Original trade published on 6-30-2022 (click to see original alert)

Background: IWM, and almost every other ETF, has been incredibly volatile as of late. With volatility still hovering well above normal and an IV rank sitting at a heightened 79.68, I decided to sell the August 19, 2022, IWM 195/200 – 145/140 iron condor with 50 days until expiration.

At the time of the trade IWM was trading for 169.27. We sold the August 19, 2022, IWM 195/200 – 145/140 iron condor for $0.70 with a 93.67% (upside) to 84.24% (downside) probability of success. The probability of touch was 12.90% (call side) – 30.45% (put side). The expected range was from 156 to 186.

Current Thoughts
As I stated last week, we could not have asked for a better start to our IWM iron condor as it currently sits comfortably within its 50-point range.

IWM is now trading for 169.56, only pennies higher than when we initiated the trade. Our probability of success stands at 96.80% on the call side and 90.39% on the put side of our iron condor. The probability of touch on both sides stands below 19%. The spread is currently trading for roughly $0.35. So we could lock in 50% of our original premium right now if we so choose. That being said, given the probabilities we are witnessing on both sides of the trade, I have no problem holding on to the trade and allowing time decay to work its magic.

Call Side:

Put Side:

Bull Put: GLD August 19, 2022, 155/150 puts
Original trade published on 7-8-2022 (click to see original alert)

Background: On July 8, GLD had reached an oversold extreme.

The options in GLD were trading at inflated levels and the IV rank was reading 86.85. As a result, I decided to sell the August 19 GLD 155/150 bull put spread.

At the time of the trade GLD was trading for 162.46. We sold the August 19, 2022, GLD 155/150 bull put spread for $0.60 with a 77.41% probability of success. The probability of touch was 45.08%. The expected range or expected move was from 156 to 170.

Current Thoughts: GLD is currently trading for 159.33, $4.33 above our short put strike of 155. Our probability of success currently sits at 68.58% while our bull put spread is going for $0.95. While we did see a short bounce since placing the trade, it wasn’t enough to warrant closing the trade for a profit. If GLD continues to push lower over the next few days, there is a chance I make an adjustment to the trade. But at the moment, we are still over $4 from our short put strike.

Next Live Analyst Briefing with Q&A

Our next live analyst briefing with Q&A is scheduled for next Wednesday, August 17, 2022 at 12 p.m. ET. As always, I will be discussing the options market, giving a detailed look at open positions, strategies used, look at a few potential trades on the trading platform and follow up with live questions and answers. I hope to see you all there! Register here.

The next Cabot Options Institute – Quant Trader issue will be published on July 22, 2022.

About the Analyst

Andy Crowder

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.