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Quant Trader
Expert-Level Options for Sophisticated Traders

Cabot Options Institute – Quant Trader Issue: October 17, 2022

I’m going to keep the intro short today as we have an upcoming subscriber-only webinar this week when I plan to touch on the current state of the market, our current trades, and some potential upcoming trades. If you wish to attend or receive the recording of the webinar, please click here to sign up.

I’m going to keep the intro short today as we have an upcoming subscriber-only webinar this week when I plan to touch on the current state of the market, our current trades, and some potential upcoming trades. If you wish to attend or receive the recording of the webinar, please click here to sign up.

Current Portfolio

Open Trades
Open DateTickerStrategyTradeOpen PriceCurrent PriceCurrent ProbabilityDelta
9/13/22IWMIron CondorOctober 21, 2022 208/203 – 163/158$0.77$1.0199.66% – 68.27%17
10/3/22SPYBull PutNovember 18, 2022 325/320$0.54$0.6381.58%3
10/4/22IWMIron CondorNovember 18, 2022 198/203 – 143/138$0.64$0.5595.67% – 86.57%0
10/6/22SPYBear CallNovember 18, 2022 412/416$0.43$0.1995.01%-1
Closed Trades
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######
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%

Volatility Talk

The song remains the same.

The VIX continues to trade in a range between 34 and 28. Early last week it looked like there was a good chance the VIX would break above the 34 area, but the bulls stepped in on Thursday with a big rally and pushed the market higher. The short-term bullishness didn’t last long, however, as the bears stepped back in on Friday and pushed the market back down towards near-term lows in the S&P 500. As I have stated for weeks now, keep an eye on that 28-35 range to see who wins this short-term tug of war between the bulls and bears. It could be the direction we are headed as we close out a memorable 2022.

COI_QT_101622_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 October 17, 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 SymbolIVIV RankHPMR Oversold – Overbought
ARK Innovation ETFARKK72.765.224.5
Proshares Bitcoin ETFBITO73.718.642.9
iShares MSCI Emerging MarketsEEM30.357.125.3
iShares MSCI EAFEEFA28.65239.8
iShares MSCI Mexico ETFEWW49.268.144.5
iShares MSCI BrazilEWZ49.747.836.9
iShares China Large-CapFXI54.870.118.2
Vaneck Gold MinersGDX20.331.830.8
SPDR GoldGLD19.570.931.6
iShares High-YieldHYG37.152.139.3
SPDR Regional BankKRE39.758.753.8
iShares Silver TrustSLV28.985.727.2
iShares 20+ Treasury BondTLT50.13725.9
United States Oil FundUSO118.518.846.5
Proshares Ultra VIX ShortUVXY8325.861.3
Barclays S&P 500 VIX ETNVXX35.56661
SPDR BiotechXLB46.874.739.1
SPDR Energy SelectXLE35.164.254.3
SPDR FinancialsXLF32.779.847.3
SPDR UtilitiesXLU47.670.628.8
SPDR RetailXRT31.251.437.7

Stock Watch List – Trade Ideas

Ticker SymbolIVIV RankHPMR Oversold – Overbought
Bank of AmericaBAC45.466.655.9
Bristol-MyersBMY30.560.353.6
CitigroupC45.763.853.1
CostcoCOST37.551.527.6
Cisco SystemsCSCO37.76743.5
CVS HealthCVS37.774.632.4
Dow Inc.DOW44.870.550.1
Duke EnergyDUK37.374.827.4
FordF67.878.739.9
Gilead SciencesGILD36.256.763.5
General MotorsGM618740
IntelINTC62.891.542.3
Johnson & JohnsonJNJ25.768.155.1
Coca-ColaKO30.878.937
Altria GroupMO34.880.269.7
MerckMRK28.829.873.2
Marvell Tech.MRVL69.470.826.4
Morgan StanleyMS43.865.831.9
MicronMU57.263.648.9
OracleORCL36.243.648.8
PfizerPFE36.954.644.4
PaypalPYPL73.172.128.1
StarbucksSBUX47.69045.1
AT&TT39.988.138.6
VerizonVZ38.48833
Walgreens Boots AllianceWBA40.351.255
Wells FargoWFC43.846.462.5
WalmartWMT3386.244.5
Exxon-MobilXOM44.972.557.9

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Iron Condor: IWM October 21, 2022, 203/208 calls – 163/158 puts
Original trade published on 9-13-2022 (click to see original alert)

Background: At the time of the trade, IWM was trading for 183.51. We sold the October 21, 2022, IWM 203/208 – 163/158 iron condor for $0.77 with a 90.93% (upside) and 85.20% (downside) probability of success. The expected range was 171 to 196.

Current Thoughts: IWM is currently trading for 166.81, and our iron condor is worth $1.00. Our probability of success stands at 99.87% on the call side and 69.93% on the put side.

With 5 days left and IWM still testing our short put strike of 163, there is still a good chance we will hit the stop-loss ($2.00) that I established with my alert that went out a few weeks ago. Our iron condor currently stands at $1.00, but a continuation of the current trend lower would certainly trigger my mental stop-loss of $2.00 and convince me to take off the trade for a small loss. That being said, a short-term bounce should give us an opportunity to take the trade off the table for a decent profit.

As I stated in the stop-loss alert that went out a few weeks ago, we have managed to outperform all indices by a nice margin, and I want to keep it that way by not allowing losses to get out of hand. Remember, losses will occur; it’s how we manage them over the long term that separates success from failure. It’s that simple. We’re never going to take 100% losses, and, in most cases, we will never even get close to that percentage.

Call Side:

COI_QT_101622_IWM_bearcall_October.png

Put Side:

COI_QT_101622_bullput_October.png

Bull Put: SPY November 18, 2022, 325/320 puts
Original trade published on 10-3-2022 (click to see original alert)

Background: At the time of the trade, SPY was trading for 364. We sold the November 18, 2022, SPY 325/320 bull put spread for $0.54 with an 82.33% (downside) probability of success. The expected range was 337 to 392.

Current Thoughts: SPY is currently trading for 357.63 and our bull put is worth $0.62. Our probability of success stands at 81.79% and the probability of touch is 35.63%.

With 33 days left, we are in good shape as we have almost 33 points of cushion to the downside, or 9.2%.

COI_QT_101622_SPY_bullput.png

Iron Condor: IWM November 18, 2022, 198/203 calls – 143/138 putsOriginal trade published on 10-4-2022 (click to see original alert)

Background: At the time of the trade, IWM was trading for 174.86. We sold the November 18, 2022, IWM 198/203 – 143/138 iron condor for $0.64 with a 90.48% (upside) and 90.49% (downside) probability of success. The expected range was 160 to 190.

Current Thoughts: IWM is currently trading for 166.81, and our iron condor is worth $0.44. Our probability of success stands at 97.03% on the call side and 88.36% on the put side.

With 33 days left until expiration, our November IWM iron condor is in great shape at the moment. Our probabilities of success, on both sides, remain incredibly high and if IWM manages to stay around this area over the next week or so we should have the opportunity to take off our trade early for a nice profit.

Call Side:

COI_QT_101622_IWM_bearcall_November-1.png

Put Side:

COI_QT_101622_IWM_bullput_November.png

Bear Call: SPY November 18, 2022, 412/416 callsOriginal trade published on 10-6-2022 (click to see original alert)

Background: At the time of the trade, SPY was trading for 374.50. We sold the November 18, 2022, SPY 412/416 bear call for $0.43 with an 89.44% probability of success. The expected range was 348 to 401.

Current Thoughts: SPY is currently trading for 357.63 and our bear call is worth $0.12. Our probability of success stands at 96.22% and the probability of touch is 7.64%.

With 33 days left, our SPY bear call spread is in good shape. So good that more than likely I will take off the trade this week, lock in some decent profits and move on to the next opportunity.

COI_QT_101622_SPY_bearcall_November.png


The next Cabot Options Institute – Quant Trader issue will be published on October 24, 2022.

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.