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

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.

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.

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

Stock Watch List – Trade Ideas

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.

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:

Puts:

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

December 5, 2022.