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Quant Trader
Expert-Level Options for Sophisticated Traders

Cabot Options Institute – Quant Trader Issue: November 28, 2022

Not much has changed in the past week. We currently have two open positions: a bear call spread in SPY and an IWM iron condor. Both are due to expire December 16, 2022, and both are currently in a profitable state. My hope is that we can take both of our trades off this week for nice profits.

I also plan on adding another bear call spread to the mix this week, this time for the January expiration cycle. And if we see a decent pullback this week, I’ll follow that trade with a bull put spread in January.

Current Portfolio

Open Trades

Open DateTickerStrategyTradeOpen PriceCurrent PriceCurrent ProbabilityDelta
11/10/22SPYBear Call SpreadDecember 16, 2022 420/425$0.65$0.6386.80%0.06
Open DateClosed DateTickerStrategy TradeOpen PriceClosing PriceReturn
6/2/226/13/22SPYBear Call SpreadJuly 15, 2022 440/445 $0.70$0.0514.94%
6/8/226/17/22XOPBear Call SpreadJuly 15, 2022 190/195$0.70$0.0415.21%
6/22/227/13/22SPYBear Call SpreadJuly 29, 2022 405/410$0.75$0.358.70%
6/30/227/25/22IWMIron CondorAugust 19, 2022 195/200 - 145/140$0.70$0.347.76%
7/8/227/28/22GLDBull Put SpreadAugust 19, 2022 155/150 $0.60$0.169.65%
7/14/228/11/22SPYIron CondorAugust 19, 2022 417/412 - 335/330$0.70$4.10-68.00%
8/1/228/29/22SPYBear Call SpreadSeptember 16, 2022 439/444$0.70$0.0714.42%
8/11/228/29/22DIABear Call SpreadSeptember 23, 2022 350/325$0.75$0.0815.47%
8/11/229/8/22IWMIron CondorSeptember 23, 2022 220/215 - 173/168$0.77$0.574.17%
9/7/229/9/22QQQBull Put SpreadOctober 21, 2022 260/255$0.62$0.306.84%
9/9/229/15/22SPYBear Call SpreadOctober 21, 2022 430/435$0.75$0.2511.11%
9/13/2210/17/22IWMIron CondorOctober 21, 2022 208/203 - 163/158$0.77$0.3010.40%
10/3/2210/25/22SPYBull Put SpreadNovember 18, 2022 325/320 $0.54$0.099.89%
10/4/2211/2/22IWMIron CondorNovember 18, 2022 198/203 - 143/138$0.64$0.326.84%
10/6/2211/2/22SPYBear Call SpreadNovember 18, 2022 412/416$0.43$0.283.90%
11/16/2211/28/22IWMIron CondorDecember 16, 2022 205/200 - 162/157$0.75$0.2411.36%

Volatility Talk

The VIX finally used the holiday-shortened week and low volume as an opportunity to push back to the 20 level, an area that has acted as strong support in the recent past. Given the current short-term overbought state, in all the major indices, I expect the VIX will act very much the same this time around as well. If not, the next area of support stands around 18. Remember, we’ve seen this type of price action several times in 2022 only to see the VIX bounce back with a vengeance.

COI_QT_112822_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 November 28, 2022.

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 ETFARKK56.923.345.2
Proshares Bitcoin ETFBITO86.920.745.1
SPDR Dow JonesDIA20.216.679.8
iShares MSCI Emerging MarketsEEM23.222.457
iShares MSCI EAFEEFA19.628.578.1
iShares MSCI Mexico ETFEWW24.939.268.3
iShares MSCI BrazilEWZ53.257.938.3
iShares China Large-CapFXI41.83850.5
Vaneck Gold MinersGDX41.530.266.6
SPDR Gold GLD14.8061.6
iShares High-YieldHYG12.724.166.1
iShares Russell 2000IWM25.210.559.9
SPDR Regional BankKRE25.80.260.2
Vaneck Oil ServicesOIH49.423.742.1
Invesco Nasdaq 100QQQ27.122.659.4
iShares Silver TrustSLV31.422.560.3
Vaneck SemiconductorSMH35.524.262.4
SPDR S&P 500 SPY 20.715.569.1
iShares 20+ Treasury BondTLT24.743.372.7
United States Oil FundUSO49.830.228.8
Proshares Ultra VIX ShortUVXY96.23.417.6
CBOE Market Volatility IndexVIX81.829.522.1
Barclays S&P 500 VIX ETNVXX66.8717.8
SPDR BiotechXLB23.132.775.7
SPDR Energy Select XLE35.732.651.5
SPDR FinancialsXLF22.33.373.7
SPDR UtilitiesXLU22.030.873.5
SPDR S&P Oil & Gas ExplorerXOP46.521.250
SPDR Retail XRT36.220.366.5

Stock Watch List – Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL32.732.649.5
Bank of AmericaBAC27.90.764.7
Bristol-Myers SquibbBMY20.08.868.9
CitigroupC28.90.753.2
CaterpillarCAT31.015.966.7
ComcastCMCSA33.423.182.7
CostcoCOST30.621.374.7
Cisco SystemsCSCO23.311.875
ChevronCVX29.216.451.7
DisneyDIS34.518.659
Duke EnergyDUK23.52673.7
FedexFDX42.143.171.4
Gilead SciencesGILD25.520.189.6
General MotorsGM39.16.963
IntelINTC35.832.449.9
Johnson & JohnsonJNJ16.41.270.3
JP MorganJPM24.410.975
Coca-ColaKO16.95.579.3
Altria GroupMO24.0952
MerckMRK21.516.480.2
Morgan StanleyMS27.41072.4
MicrosoftMSFT29.015.668.8
Nextera EnergyNEE28.126.472.1
NvidiaNVDA52.21663.4
PfizerPFE24.47.367.4
PaypalPYPL46.513.337
StarbucksSBUX29.215.579
AT&TT22.811.972
VerizonVZ22.318.467.1
Walgreens Boots AllianceWBA27.926.771.9
Wells FargoWFC272.662.9
WalmartWMT19.912.778.3
Exxon MobilXOM3115.155.5

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Bear Call: SPY December 16, 2022, 420/425 calls
Original trade published on 11-10-2022 (click to see original alert)

Background: At the time of the trade, SPY was trading for 334.10. We sold the December 16, 2022, SPY 420/425 bear call for $0.65 with an 86.45% probability of success. The expected range was 367 to 414.

Current Thoughts: SPY is currently trading for 402.33 and our bear call is worth $0.63. Our probability of success stands at 87.13% and the probability of touch is 25.73%.

With 18 days left, our SPY bear call spread continues to be in good shape. I expect to take off the position this week for a decent profit if SPY pulls back from its current short-term overbought reading.

1COI_QT_112822_SPY_bearcall.png

Iron Condor: IWM December 16, 2022, 205/200 calls – 162/157 puts
Original trade published on 11-16-2022 (click to see original alert)

Background: At the time of the trade, IWM was trading for 184.87. We sold the December 16, 2022, 205/200 – 162/157 IWM iron condor for $0.75. The probability of success was 87.74% to the upside and 90.39% to the downside.

Current Thoughts: IWM is currently trading for 185.58 and our iron condor is worth $0.27. Our probability of success stands at 93.89% on the call side and 95.60% on the put side.

So, with 18 days left, I intend on allowing our IWM to expire worthless. However, that could change if we see a sharp move to one side or the other over the coming week. We don’t want to get too greedy here. We can currently lock in a nice return of 10.6% in just over 10 days, so we don’t need to press. Although, with the probabilities sitting so high at the moment on the trade, we also don’t need to rush exiting the trade. We still have potentially another 5.7% left in premium to gain from holding the trade.

Calls:

COI_QT_112822_IWM_bearcall.png

Puts:

COI_QT_112822_IWM_bullput.png

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

December 5, 2022.

Andy Crowder is a professional options trader, researcher and Senior Analyst at Cabot. 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.