Please ensure Javascript is enabled for purposes of website accessibility
Quant Trader
Expert-Level Options for Sophisticated Traders

Cabot Options Institute – Quant Trader Issue: October 31, 2022

We currently have two positions open, both of which have a probability of success higher than 84%.

With December expiration quickly approaching (45 days) I plan on adding several new positions this week. We want to have, at the minimum, one bullish, bearish and neutral trade for each expiration cycle and December is no different.

My hope is that we have the ability to take our open trades off the table this month for a profit. Both trades are due to expire at the November expiration cycle in 18 days. Time decay is accelerating as each day passes and a move lower would make it easier to take the trades off the table over the next few days for some nice profits.

We currently have two positions open, both of which have a probability of success higher than 84%.

With December expiration quickly approaching (45 days) I plan on adding several new positions this week. We want to have, at the minimum, one bullish, bearish and neutral trade for each expiration cycle and December is no different.

My hope is that we have the ability to take our open trades off the table this month for a profit. Both trades are due to expire at the November expiration cycle in 18 days. Time decay is accelerating as each day passes and a move lower would make it easier to take the trades off the table over the next few days for some nice profits.

Current Portfolio

Open Trades
Open DateTickerStrategyTradeOpen PriceCurrent PriceCurrent ProbabilityDelta
10/4/2022IWMIron CondorNovember 18, 2022 198/203 – 143/138$0.64$0.5586.39% – 98.74%-6
10/6/2022SPYBear CallNovember 18, 2022 412/416$0.43$0.6484.38%-4
Closed Trades
Open DateClosed DateTickerStrategy TradeOpen PriceClosing PriceReturn
6/2/20226/13/2022SPYBear Call SpreadJuly 15, 2022 440/445$0.70$0.0514.94%
6/8/20226/17/2022XOPBear Call SpreadJuly 15, 2022 190/195$0.70$0.0415.21%
6/22/20227/13/2022SPYBear Call SpreadJuly 29, 2022 405/410$0.75$0.358.70%
6/30/20227/25/2022IWMIron CondorAugust 19, 2022 195/200 – 145/140$0.70$0.347.76%
7/8/20227/28/2022GLDBull Put SpreadAugust 19, 2022 155/150$0.60$0.169.65%
7/14/20228/11/2022SPYIron CondorAugust 19, 2022 417/412 – 335/330$0.70$4.10-68.00%
8/1/20228/29/2022SPYBear Call SpreadSeptember 16, 2022 439/444$0.70$0.0714.42%
8/11/20228/29/2022DIABear Call SpreadSeptember 23, 2022 350/325$0.75$0.0815.47%
8/11/20229/8/2022IWMIron CondorSeptember 23, 2022 220/215 – 173/168$0.77$0.574.17%
9/7/20229/9/2022QQQBull Put SpreadOctober 21, 2022 260/255$0.62$0.306.84%
9/9/20229/15/2022SPYBear Call SpreadOctober 21, 2022 430/435$0.75$0.2511.11%
9/13/202210/17/2022IWMIron CondorOctober 21, 2022 208/203 – 163/158$0.77$0.3010.40%
10/3/202210/25/2022SPYBull Put SpreadNovember 18, 2022 325/320$0.54$0.099.89%

Volatility Talk

The VIX broke below the near-term range of 28 to 35 to close out last week at 25.75. The question is, how much lower will the fear gauge go? Is the market becoming more at ease with ongoing inflationary and geopolitical concerns?

The VIX is very oversold at the moment, so it wouldn’t surprise me to see a near-term bounce off oversold levels. If a bounce occurs, we will intently watch how the index responds to the 28 level. Will it act as support or resistance?

COI_QT_103022_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 31, 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 ETFARKK62.946.465.9
Proshares Bitcoin ETFBITO65.49.471.5
SPDR Dow JonesDIA23.652.586.1
iShares MSCI Emerging MarketsEEM26.847.941.7
iShares MSCI EAFEEFA25.841.968.4
iShares MSCI Mexico ETFEWW29.443.583.9
iShares MSCI BrazilEWZ55.986.446.5
iShares China Large-CapFXI53.160.627.5
Vaneck Gold MinersGDX45.755.858.4
SPDR Gold GLD17.520.241.7
iShares High-YieldHYG17.055.176.3
iShares Russell 2000IWM30.248.675.5
SPDR Regional BankKRE34.527.467.6
Vaneck Oil ServicesOIH50.74178.5
Invesco Nasdaq 100QQQ31.363.259.5
iShares Silver TrustSLV35.243.951.25
Vaneck SemiconductorSMH41.258.565.1
SPDR S&P 500 SPY 25.456.569.9
iShares 20+ Treasury BondTLT26.260.348
United States Oil FundUSO46.838.861.6
Proshares Ultra VIX ShortUVXY87.82.118.4
CBOE Market Volatility IndexVIX66.37.818.2
Barclays S&P 500 VIX ETNVXX60.26.617.7
SPDR BiotechXLB28.749.970.6
SPDR Energy Select XLE37.840.881.5
SPDR FinancialsXLF27.031.277.4
SPDR UtilitiesXLU26.858.469
SPDR S&P Oil & Gas ExplorerXOP47.222.363.9
SPDR Retail XRT42.447.672.6

Stock Watch List – Trade Ideas

Ticker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL40.840.867.6
Bank of AmericaBAC34.634.677.8
Bristol-Myers SquibbBMY23.719.982.9
CitigroupC34.330.373.8
CaterpillarCAT34.334.690.4
ComcastCMCSA38.939.571.5
CostcoCOST30.029.675
Cisco SystemsCSCO36.851.685.8
ChevronCVX33.646.685.9
DisneyDIS43.846.275.2
Duke EnergyDUK28.339.567.8
FedexFDX36.138.665.8
Gilead SciencesGILD31.839.991.5
General MotorsGM45.439.482.2
IntelINTC42.350.971.4
Johnson & JohnsonJNJ20.820.983.2
JP MorganJPM30.328.480.7
Coca-ColaKO25.135.380.9
Altria GroupMO27.130.565.2
MerckMRK23.713.487.4
Morgan StanleyMS33.734.765
MicrosoftMSFT33.843.748.5
Nextera EnergyNEE34.049.667.6
NvidiaNVDA65.949.574.4
PfizerPFE31.129.878.8
PaypalPYPL68.066.749.6
StarbucksSBUX42.772.152.2
AT&TT28.435.385.9
VerizonVZ27.743.561.4
Walgreens Boots AllianceWBA3127.282.1
Wells FargoWFC33.93177.4
WalmartWMT30.133.980.5
Exxon MobilXOM34.330.183.3

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

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:vIWM is currently trading for 183.16, and our iron condor is worth $0.55. Our probability of success stands at 86.35% on the call side and 98.75% on the put side.

With 18 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.

The only concern we have is if IWM continues to trend sharply higher over the next few trading days. If that occurs we should have the ability to adjust our trade by most likely rolling out and up several strikes for the following expiration cycle. But again, this would take a sharp move. Time decay is working in our favor and we still have an 8.2% cushion to the upside in an ETF that sits in a short-term “very overbought” state.

Call Side:

COI_QT_103022_IWM_bearcalls.png

Put Side:

COI_QT_103022_IWM_bullputs.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 389.02 and our bear call is worth $0.64. Our probability of success stands at 84.19% and the probability of touch is 31.94%.

With 18 days left, our SPY bear call spread remains in good shape. But like our IWM position, the one concern we have is if SPY continues to trend sharply higher over the next few trading days. If that occurs, again just like our IWM trade, we should have the ability to adjust our trade by most likely rolling out and up several strikes for the following expiration cycle. But again, this would take a sharp move. Time decay is working in our favor and we still have a 5.9% cushion to the upside in another ETF that also sits in a short-term “very overbought” state.

COI_QT_103022_SPY_bearcalls.png

The next Cabot Options Institute – Quant Trader issue will be published on November 7, 2022.