Back and forth we go as the bulls decided it was their turn to take charge this week.

The S&P 500 (SPY) pushed 2.0% since last week’s issue while the tech-heavy Nasdaq 100 (QQQ) gained an impressive 4.6%. Growth as seen through the Russell 2000 (IWM) saw an increase of 4.7%.

Nothing new here.

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.

Cabot Options Institute – Quant Trader Issue: July 8, 2022

Back and forth we go as the bulls decided it was their turn to take charge this week.

Nothing new here.

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.

The last four out of five weeks have seen a swing of 5% or more, which is historic. Couple that historically volatile stretch with analyst Jason Goepfert’s (of Sundial Capital Research) recent statistic stating, “over the past 50 sessions, the S&P 500 has suffered a 2% or larger intraday loss 15 times. That ranks among the largest clusters of heavy intraday selling pressure since 1962,” and we should have a good understanding of just how extreme volatility has been over the past few months.

Needless to say, the last five weeks have been a doozy, yet we’ve managed to lock in two trades of 15% each. Not bad given the current market environment. During times of market extremes, I’ve learned to take a more cautious approach. Trading is about patience. It’s certainly not about the number of trades you place during a given timeframe. It’s about the quality of trades, understanding there is an ebb and flow to trading frequency.

That being said, we currently have two open trades and both look good at the moment. Our July 29 SPY bear call spread, while trading above our entry price of $0.75, still has a 78.84% probability of success. Our August 19 IWM iron condor looks even better as the probability on the call and put side are above a 90% probability of success.

My hope is to add at least two to four more over the next two weeks as I’d like to have at least three to five positions heading into the August expiration cycle. Gold and energy continue to garner my interest as they are both incredibly oversold, especially gold. So don’t be surprised to see an alert for one, if not both, over the coming days.

Current Portfolio

Open Trades
Open Date	Ticker	Strategy	Trade	Open Price	Current Price	Current Return	Current Probability	Delta
6/22/2022	SPY	Bear Call Spread	July 29, 2022 405/410	$0.75	$1.08	-6.67%	78.84%	-8
6/30/2022	IWM	Iron Condor	August 19, 2022 195/200 - 145/140	$0.70	$0.62	1.63%	90.65% (call) - 91.07% (put)	-3

Closed Trades
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 Calls	$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%

Volatility Talk
Since last Thursday’s close, volatility, as seen through the VIX, hasn’t budged. Last Thursday the VIX closed at 26.08 and did the same one week later. Of course, the journey to get back to the same level was far more telling than the result.

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.

Of course, the exact opposite has been seen by the S&P 500 ETF (SPY), which makes perfect sense given they tend to move opposite of one another. Every bear market rally has been met with decisiveness from sellers. Eventually this will end; the question is when, and unfortunately my crystal ball is way too cloudy at the moment. I wouldn’t be surprised to see SPY push to 400 to close the gap from July 10 before the selling ramps up again, but again, I can’t accurately predict the future, which is why I trade with a high-probability approach. The margin of error the approach provides thankfully makes up for my lack of fortune telling.

Anyway, as I stated in the section above, 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	70.6	62	65.9
Proshares Bitcoin ETF	BITO	89	43.6	56.3
SPDR Dow Jones	DIA	22.8	44.6	58.9
iShares MSCI Emerging Markets	EEM	25.6	39.6	49.7
iShares MSCI EAFE	EFA	26.5	47.9	44.4
iShares MSCI Mexico ETF	EWW	25.6	59	31.4
iShares MSCI Brazil	EWZ	38.5	54.8	42.4
iShares China Large-Cap	FXI	34.5	27.5	61.4
Vaneck Gold Miners	GDX	44.2	68.1	32.5
SPDR Gold	GLD	20.4	34.2	13.5
iShares High-Yield	HYG	17.1	67.1	57.9
iShares Russell 2000	IWM	31.1	57	59.7
SPDR Regional Bank	KRE	32.4	35.2	54.2
Vaneck Oil Services	OIH	60.2	65.9	37.9
Invesco Nasdaq 100	QQQ	32.8	64.6	64.5
iShares Silver Trust	SLV	33.9	34.9	16
Vaneck Semiconductor	SMH	41	56.9	50.7
SPDR S&P 500	SPY	27.4	54.7	61.3
iShares 20+ Treasury Bond	TLT	23.9	65.4	48.3
United States Oil Fund	USO	55.2	43.6	37.3
Proshares Ultra VIX Short	UVXY	90.3	1.1	33.5
CBOE Market Volatility Index	VIX	86.9	5.9	36.4
Barclays S&P 500 VIX ETN	VXX	65.4	1	36.6
SPDR Biotech	XLB	28	55.8	38.6
SPDR Energy Select	XLE	48.3	79.9	40
SPDR Financials	XLF	28.4	41.4	55.2
SPDR Utilities	XLU	22.1	61	54.1
SPDR S&P Oil & Gas Explorer	XOP	59.5	51.5	38.9
SPDR Retail	XRT	41.6	57.2	53.4

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	38.3	53.5	69.3
Bank of America	BAC	39.7	49.2	47.6
Bristol-Myers Squibb	BMY	26.3	39.6	35.9
Citigroup	C	42.7	59.7	47.8
Caterpillar	CAT	43.1	80	41.5
Comcast	CMCSA	35.7	47.2	52.4
Costco	COST	31.1	38	71.5
Cisco Systems	CSCO	29.5	48.1	51.5
Chevron	CVX	41.6	80.6	37.1
Disney	DIS	39.9	44.7	54.5
Duke Energy	DUK	25	72	54.6
Fedex	FDX	39	44	53.6
Gilead Sciences	GILD	29.2	23.5	61.2
General Motors	GM	55.2	68.9	46.8
Intel	INTC	46	65.8	54.5
Johnson & Johnson	JNJ	22.6	46	55.9
JP Morgan	JPM	36	55.2	48.4
Coca-Cola	KO	26.5	65.3	53.1
Altria Group	MO	35.8	80.9	33.7
Merck	MRK	26.9	40.7	62.7
Morgan Stanley	MS	41.1	59.6	51.6
Microsoft	MSFT	35.2	45	64.8
Nextera Energy	NEE	33.1	61.5	66.7
Nvidia	NVDA	57.7	41.7	50.8
Pfizer	PFE	34.7	49.1	68.7
Paypal	PYPL	74.1	70.4	54
Starbucks	SBUX	41.7	75.6	65.9
AT&T	T	29.9	56.4	62.9
Verizon	VZ	24.5	50	46.5
Walgreens Boots Alliance	WBA	32.2	43.6	34.3
Wells Fargo	WFC	44.7	50.7	52.6
Walmart	WMT	25.7	65	65.5
Exxon Mobil	XOM	47.3	77.5	43.4

Weekly Trade Discussion: Open Positions

Bear Call Spread: SPY July 29, 2022, 405/410 calls
Original trade published on 6-22-2022 (click to see original alert)

Background: SPY bounced during the early part of the week, so with the VIX still hovering around 30 and the IV rank sitting at a staggering 92.83, I decided to sell the July 29 SPY 405/410 bear call spread with 37 days until expiration.

At the time of the trade SPY was trading for 375.44. We sold the July 29, 2022, 405/410 bear call spread for $0.75 with an 84.94% probability of success. The probability of touch was 30.79%. The upward bound of the expected range was 401.

Current Thoughts: SPY sits roughly $14 above where it was when we placed the trade back on June 22.

SPY is now trading for 388.99, $12 higher than last week. Not the best directional trend for this position, but as you can see in the image below, our probability of success stands at 78.78% and our probability of touch is 43.12%. The spread is currently trading for roughly $1.08.

No worries here. We are still safely below our short call of 405. Our probability of success is still above 78%. So nothing has changed from last week. I like our chances at the moment. Of course, as we all know, things can change quickly. But if we continue to see the market hover around this area or better yet, move lower, we should have the opportunity to take some decent profits off the table.
Bear Call

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: 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 175.61, $6 higher than last week, but as you can see in the image below, our probability of success stands at 90.68% on the call side and 91.01% 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 $0.62.

No worries here. We are still safely below our short call of 195 and above our short put of 145. Our probability of success on both sides stands above 90%, so we couldn’t be in better shape at the moment. A no-stress trade … for now.

As I mentioned with our SPY trade above, things can change quickly. But if we continue to see the market hover around this area for the next few weeks, we should have the opportunity to lock in some nice profits.

Call Side:

Put Side:

Next Live Analyst Briefing with Q&A

Our next live analyst briefing with Q&A is scheduled for next Wednesday, July 13, 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 15, 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.