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Quant Trader
Expert-Level Options for Sophisticated Traders

Cabot Options Institute – Quant Trader Issue: October 24, 2022

I’m going to keep it short today as we are coming off the end of the October expiration cycle. We locked in another winning trade last week to make it 12 out of 13 winning trades for a win ratio of 92.3%. Moreover, our three open trades are all in profitable territory and there is a good chance I will close out a few, if not all, over the coming days. If I do close out all three trades, expect to see a few opening trades going out roughly 30-45 days. Stay tuned!

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
10/3/22SPYBull PutNovember 18, 2022 325/320$0.54$0.2092.51%1
10/4/22IWMIron CondorNovember 18, 2022 198/203 – 143/138$0.64$0.3095.14% – 94.20%0
10/6/22SPYBear CallNovember 18, 2022 412/416$0.43$0.3290.77%-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$4.10-68.00%
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%

Volatility Talk

The VIX continues to swing back and forth between the range of 28 to 35. However, this week rather than testing the upside portion of the range we shall see if the VIX is able to breach the downside at 28. A move below 28 and we could see this recent rally have some legs that could carry into the midterms and potentially beyond.

COI_QT_102322_VIX_chart.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 24, 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 ETFARKK68.155.944.4
Proshares Bitcoin ETFBITO71.214.846.8
SPDR Dow JonesDIA27.268.370.4
iShares MSCI Emerging MarketsEEM29.346.452.1
iShares MSCI EAFEEFA28.152.458.3
iShares MSCI Mexico ETFEWW30.455.173.6
iShares MSCI BrazilEWZ52.785.475.4
iShares China Large-CapFXI46.35131
Vaneck Gold MinersGDX51.364.458.3
SPDR GoldGLD18.925.659.1
iShares High-YieldHYG19.562.354.2
iShares Russell 2000IWM34.37154.9
SPDR Regional BankKRE36.14644.1
Vaneck Oil ServicesOIH54.347.780.2
Invesco Nasdaq 100QQQ35.577.458.2
iShares Silver TrustSLV37.95455.6
Vaneck SemiconductorSMH45.873.656.8
SPDR S&P 500SPY29.77259.6
iShares 20+ Treasury BondTLT31.3106.812.1
United States Oil FundUSO46.230.651.2
Proshares Ultra VIX ShortUVXY10411.542.8
CBOE Market Volatility IndexVIX89.54.937.6
Barclays S&P 500 VIX ETNVXX73.316.742.3
SPDR BiotechXLB33.46261.7
SPDR Energy SelectXLE41.153.675.4
SPDR FinancialsXLF31.849.458.8
SPDR UtilitiesXLU31.375.843.4
SPDR S&P Oil & Gas ExplorerXOP51.732.765.9
SPDR RetailXRT45.462.551

Stock Watch List – Trade Ideas

Ticker SymbolIVIV RankHPMR Oversold –
Overbought
AppleAAPL41.868.862.3
Bank of AmericaBAC39.750.670.2
Bristol-Myers SquibbBMY28.450.762.7
CitigroupC41.44759.7
CaterpillarCAT42.270.970.6
ComcastCMCSA49.670.752
CostcoCOST3335.456.5
Cisco SystemsCSCO42.165.669.8
ChevronCVX40.268.278.4
DisneyDIS46.549.265.7
Duke EnergyDUK32.75841.7
FedexFDX41.147.844.4
Gilead SciencesGILD30.746.671.8
General MotorsGM55.270.662.1
IntelINTC59.59159.5
Johnson & JohnsonJNJ21.431.469.4
JP MorganJPM36.450.474.3
Coca-ColaKO28.97051.3
Altria GroupMO31.759.455.4
MerckMRK27.225.175.1
Morgan StanleyMS39.350.852.2
MicrosoftMSFT41.164.560.3
Nextera EnergyNEE40.272.633.8
NvidiaNVDA69.962.558.6
PfizerPFE34.845.666.5
PaypalPYPL70.670.542.3
StarbucksSBUX43.174.454.9
AT&TT31.644.579.5
VerizonVZ32.358.229.7
Walgreens Boots AllianceWBA38.543.466
Wells FargoWFC39.733.667.8
WalmartWMT32.972.969.4
Exxon MobilXOM39.854.975.6

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

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 374.29 and our bull put is worth $0.20. Our probability of success stands at 92.43% and the probability of touch is 14.87%.

With 25 days left, we are in good shape as we have almost 50 points of cushion to the downside, or 13.3%.

COI_QT_102322_SPY_bullput-2048x300.png

Iron Condor: IWM November 18, 2022, 198/203 calls – 143/138 puts
Original 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 172.70, and our iron condor is worth $0.30. Our probability of success stands at 95.20% on the call side and 94.17% on the put side.

With 25 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_102322_IWM_bearcall-2048x363.png

Put Side:

COI_QT_102322_IWM_bullput-2048x432.png

Bear Call: SPY November 18, 2022, 412/416 calls
Original 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 374.29 and our bear call is worth $0.32. Our probability of success stands at 90.93% and the probability of touch is 18.32%.

With 25 days left, our SPY bear call spread is in good shape. There is a good chance I will take this spread off early for a small profit. We still have 37 points of cushion to the upside, or 9.9%.

COI_QT_102322_SPY_bearcall-2048x322.png


The next Cabot Options Institute – Quant Trader issue will be published on October 31, 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.