We locked in another gain this week, marking our fifth straight winner since starting the Quant Trader service. Our cumulative total is 56.26%, for an average winner of 11.25%. The gains have been on the smaller side, but given the volatility we’ve seen in this market, I’ve chosen to take winners off the table when we can lock in 50% to 75% of the original premium sold. In some cases, I might let a few winners run a little longer, but not in this market. There is no need to press. And when you think the market has lost 2.6% over the same time frame, well, I think we’ve done okay for ourselves.
Cabot Options Institute – Quant Trader Issue: July 29, 2022
We locked in another gain this week, marking our fifth straight winner since starting the Quant Trader service. Our cumulative total is 56.26%, for an average winner of 11.25%. The gains have been on the smaller side, but given the volatility we’ve seen in this market, I’ve chosen to take winners off the table when we can lock in 50% to 75% of the original premium sold. In some cases, I might let a few winners run a little longer, but not in this market. There is no need to press. And when you think the market has lost 2.6% over the same time frame, well, I think we’ve done okay for ourselves.
I plan on adding several more trades next week and will most likely adjust our SPY iron condor as well. I discuss my thoughts on the SPY iron condor trade in the “Weekly Trade Discussion” below.
Current Portfolio
| Open Trades | |||||||
| Open Date | Ticker | Strategy | Trade | Open Price | Current Price | Current Probability | Delta |
| 7/14/2022 | SPY | Iron Condor | 8/19/22 417/412 - 335/330 | $0.70 | $1.94 | 58.11% (call) - 98.35% (put) | -11 |
| 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 | 7/29/22 405/410 | $0.75 | $0.35 | 8.70% |
| 6/30/2022 | 7/25/2022 | IWM | Iron Condor | 8/19/22 195/200 - 145/140 | $0.70 | $0.34 | 7.76% |
| 7/8/2022 | 7/28/2022 | GLD | Bull Put Spread | 8/19/22 155/150 | $0.60 | $0.16 | 9.65% |
Volatility Talk
The VIX continues the push lower that began back in the middle of June. Now we are seeing extreme short-term oversold readings in the investor’s fear gauge and a break below the 200-day moving average. The VIX is one of the more reliable mean-reversion gauges, so I expect to see a near-term bounce over the coming days. Couple that with all of the major indices in deeply short-term overbought states and well, again, I would anticipate seeing a near-term bounce next week, which means a pullback or at least a short-term reprieve going forward.
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 August 1, 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
We have an abundance of ETFs on our watchlist that are in a short-term overbought state. As a result, expect to see a trade or two next week as we want to take advantage of the short-term extremes in several of the ETFs mentioned on our watch list. Thankfully, we didn’t get ahead of ourselves and step into the ongoing rally this week. Next week should offer some good opportunities for a short-term bear call spread or two. Be on the lookout for a trade alert early next week.
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| ARK Innovation ETF | ARKK | 60.7 | 47.6 | 54.1 |
| ProShares Bitcoin ETF | BITO | 83.1 | 31.5 | 64.7 |
| SPDR Dow Jones | DIA | 19.1 | 20.7 | 72.9 |
| iShares MSCI Emerging Markets | EEM | 21.4 | 35.3 | 63.3 |
| iShares MSCI EAFE | EFA | 24.7 | 31.1 | 69 |
| iShares MSCI Mexico ETF | EWW | 25.2 | 31.3 | 70.6 |
| iShares MSCI Brazil | EWZ | 35.8 | 39.7 | 80.7 |
| iShares China Large-Cap | FXI | 30.6 | 17.5 | 40.6 |
| VanEck Gold Miners | GDX | 43.5 | 67.6 | 51.9 |
| SPDR Gold | GLD | 16.8 | 13.9 | 66.9 |
| iShares High-Yield | HYG | 13.6 | 45.3 | 75.7 |
| iShares Russell 2000 | IWM | 27.1 | 40 | 74.3 |
| SPDR Regional Bank | KRE | 27.8 | 15.4 | 71.5 |
| VanEck Oil Services | OIH | 52.4 | 42.5 | 64.5 |
| Invesco Nasdaq 100 | QQQ | 30.2 | 48.2 | 67.6 |
| iShares Silver Trust | SLV | 30.1 | 20.6 | 72.1 |
| VanEck Semiconductor | SMH | 37 | 44.2 | 72.3 |
| SPDR S&P 500 | SPY | 23.9 | 37.3 | 72.2 |
| iShares 20+ Treasury Bond | TLT | 19.7 | 40.6 | 61.6 |
| United States Oil Fund | USO | 46 | 32.9 | 52.8 |
| ProShares Ultra VIX Short | UVXY | 109.8 | 13.5 | 20.7 |
| CBOE Market Volatility Index | VIX | 83.5 | 7 | 32.7 |
| Barclays S&P 500 VIX ETN | VXX | 65.7 | 8.1 | 31.1 |
| SPDR Biotech | XLB | 23.6 | 55.2 | 72.7 |
| SPDR Energy Select | XLE | 38.8 | 42.5 | 66.8 |
| SPDR Financials | XLF | 24.6 | 25.3 | 66.5 |
| SPDR Utilities | XLU | 19 | 40 | 81.1 |
| SPDR S&P Oil & Gas Explorer | XOP | 49.8 | 28.1 | 68.8 |
| SPDR Retail | XRT | 37.5 | 79.8 | 55.9 |
Stock Watch List- Trade Ideas
Not much has changed since last week. The short-term overbought stocks pushed further into a short-term overbought state, while most of the oversold stocks continued to fall. There is a good chance I trade from both sides next week adding not only a few bear call spreads, but I could easily see adding a bull put spread or two as well. The key is to keep my overall deltas in a fairly neutral state, as I don’t want to lean too far to one side.
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| Apple | AAPL | 34.6 | 33.9 | 71.9 |
| Bank of America | BAC | 38.4 | 25.8 | 57.3 |
| Bristol-Myers Squibb | BMY | 37.6 | 17.3 | 57.2 |
| Citigroup | C | 36.9 | 26.7 | 66.4 |
| Caterpillar | CAT | 42 | 52.6 | 71.4 |
| Comcast | CMCSA | 44.1 | 27.3 | 32.9 |
| Costco | COST | 31.2 | 26.7 | 68.8 |
| Cisco Systems | CSCO | 40.8 | 49.2 | 73.4 |
| Chevron | CVX | 42.4 | 54.7 | 67.6 |
| Disney | DIS | 44 | 36.3 | 68.8 |
| Duke Energy | DUK | 28.3 | 68.8 | 67.8 |
| Fedex | FDX | 36.6 | 23.2 | 61.8 |
| Gilead Sciences | GILD | 37.7 | 32.5 | 34.7 |
| General Motors | GM | 46.2 | 32.3 | 67.4 |
| Intel | INTC | 46.9 | 92.4 | 57.3 |
| Johnson & Johnson | JNJ | 27 | 28 | 52 |
| JP Morgan | JPM | 33.8 | 26 | 53.7 |
| Coca-Cola | KO | 27.1 | 27.9 | 69.9 |
| Altria Group | MO | 33.2 | 48.3 | 66.8 |
| Merck | MRK | 27.9 | 24.4 | 35.8 |
| Morgan Stanley | MS | 40.8 | 19 | 68 |
| Microsoft | MSFT | 42.8 | 28.6 | 69.7 |
| NextEra Energy | NEE | 37.1 | 44.5 | 76.7 |
| Nvidia | NVDA | 63.5 | 37.4 | 66.7 |
| Pfizer | PFE | 38.2 | 26.6 | 38.9 |
| PayPal | PYPL | 78 | 69.7 | 68.1 |
| Starbucks | SBUX | 42.3 | 74.2 | 70.5 |
| AT&T | T | 28.7 | 34.5 | 28.5 |
| Verizon | VZ | 25.2 | 39.1 | 28.3 |
| Walgreens Boots Alliance | WBA | 32 | 20.6 | 65.8 |
| Wells Fargo | WFC | 44.3 | 11.6 | 64.5 |
| Walmart | WMT | 32.5 | 55.5 | 55.5 |
| Exxon Mobil | XOM | 42.6 | 47.2 | 71.7 |
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 falling 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: SPY continued to rally this week stretching its gains to almost 8.5% since we added the position back on June 14, yet the major market index is still below our short strike of 412.
That being said, I will most likely adjust the trade over the next trading session or two unless we see an immediate pullback. We have a few choices here, but the most likely is to roll up the untested side to bring in a bit more premium. However, there is a chance I might just roll the entire condor out with the intent to bring in more premium. The point is, we have choices, but we will need to act on them sooner than later as expiration is only three weeks away and when we dip under the 21-day threshold until expiration it becomes far more difficult to make any meaningful adjustments. As always, I will keep you aware of any adjustments I decide to make.
Call Side
Put Side
Next Live Analyst Briefing with Q&A
Our next live analyst briefing with Q&A is scheduled for 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, will 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 August 5, 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.