Within the last two weeks we’ve been able to lock in four straight winning trades which has increased our win ratio to 90% (9 out 10 winning trades). This should be of no surprise given we’ve been placing trades with a better than 85% probability of success. Hopefully the numbers will continue to play out as the probabilities intend, but sequence risk will rear its head from time to time as we continue to pile on the trades. So with that in mind, keep your emotions in check, stay disciplined in your approach and keep your position size at reasonable levels. I’ll discuss this further, in addition to our current positions, trade ideas and more in our upcoming monthly webinar.

Cabot Options Institute – Quant Trader Issue: September 12, 2022

Within the last two weeks we’ve been able to lock in four straight winning trades which has increased our win ratio to 90% (9 out 10 winning trades). This should be of no surprise given we’ve been placing trades with a better than 85% probability of success. Hopefully the numbers will continue to play out as the probabilities intend, but sequence risk will rear its head from time to time as we continue to pile on the trades. So with that in mind, keep your emotions in check, stay disciplined in your approach and keep your position size at reasonable levels. I’ll discuss this further, in addition to our current positions, trade ideas and more in our upcoming monthly webinar. Click here to register for the subscriber-exclusive event this upcoming Wednesday, September 14 at noon Eastern Time (ET).

Last week, I decided to take off both our IWM iron condor and QQQ bull put spread. By Friday’s close, both ETFs continued to rally so we left some profits on the table, but due to the current, widely vacillating market, I decided it was best to lock in a few small gains and move on to the next opportunity.

One of those opportunities came Friday as I decided to add a SPY bear call spread to the mix. I intend on adding an iron condor and bull put spread over the next week to balance out my positions heading into the October 21 and October 28 expiration cycles.

Current Portfolio

Volatility Talk
The VIX stalled at 28 again early last week and pulled back to close the week at 22.79. If the VIX continues to trend lower over the short-term I would expect to see some support around 20. Either way, we will continue to sell premium hand over fist as the bull market in volatility continues.

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 September 12, 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 October 21, 2022, 430/435 calls
Original trade published on 9-9-2022 (click to see original alert)

Background: At the time of the trade, SPY was trading for 405. We sold the October 21, 2022, SPY 430/435 bear call spread for $0.75 with an 84.17% (upside) probability of success. The probability of touch was 31.95% (upside). The expected range was 382 to 427.

Current Thoughts: SPY is currently trading for 406.60 and our bear call spread is worth $0.81. Our probability of success stands at 83.04%.

We initiated the trade last Friday so there isn’t much to discuss at the moment. If SPY pushes lower this week, and I have the opportunity to buy back our bear call spread for roughly 50% of the original premium sold ($0.75), I’ll send out an alert. Otherwise, I’ll patiently wait for time decay to accelerate and work in our favor. Again, we are early in the trade, so unless we see a sharp move to the downside I’ll gladly wait as the days tick away as we get closer and closer to the October 21 expiration cycle.

Call Side:

The next Cabot Options Institute – Quant Trader issue will be published on September 19, 2022.

About the Analyst

Andy Crowder

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.