Weekly Commentary
The S&P 500 and every other major index finally decided to take a reprieve last week. The pullback not only helped our August 462/466 bear call spread move into profitable territory, it also led to a return in implied volatility (IV) which has a direct impact on the options premium we sell. Now, with volatility once again at reasonable levels, we are greeted with far more opportunities to sell options premium. The question is, how long will it last?
There is no doubt we moved to the sidelines for a brief stint as volatility continued to be mired in the 13 to 15 range. The transitions from high to low volatility or vice versa can be difficult to navigate and oftentimes taking a step back is the best approach. But with the VIX back above 17 and finally outside of the 13 to 15 range (for now at least) we should have the ability to sell some decent premium this week. My hope is to finally add an iron condor to the mix, if not a bull put spread to balance out our deltas. We will get there eventually. Until then, we will simply try to stay nimble by taking profits according to our mechanics and taking an unapologetically disciplined approach to risk management. Our track record continues to speak for itself during all types of market environments and risk management is the reason.
If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.
Current Portfolio
Open Trades | |||||||
| Open Date | Ticker | Strategy | Trade | Open Price | Current Price | Current Probability | Delta |
| 8/4/2023 | SPY | Bear Call | September 15, 2023 470/475 | $0.65 | $0.47 | 89.18% | -0.05 |
| 6/30/2023 | SPY | Bear Call | August 18, 2023 462/466 | $0.52 | $0.19 | 93.14% | -0.04 |
| Open Date | Closed Date | Ticker | Strategy | Trade | Open Price | Closing Price | Return |
| 6/2/2022 | 6/13/2022 | SPY | Bear Call Spread | July 15, 2022 440/445 | $0.70 | $0.05 | 14.94% |
| 6/8/2022 | 6/17/2022 | XOP | Bear Call Spread | July 15, 2022 190/195 | $0.70 | $0.04 | 15.21% |
| 6/22/2022 | 7/13/2022 | SPY | Bear Call Spread | July 29, 2022 405/410 | $0.75 | $0.35 | 8.70% |
| 6/30/2022 | 7/25/2022 | IWM | Iron Condor | August 19, 2022 195/200 - 145/140 | $0.70 | $0.34 | 7.76% |
| 7/8/2022 | 7/28/2022 | GLD | Bull Put Spread | August 19, 2022 155/150 | $0.60 | $0.16 | 9.65% |
| 7/14/2022 | 8/11/2022 | SPY | Iron Condor | August 19, 2022 417/412 - 335/330 | $0.70 | $4.10 | -68.00% |
| 8/1/2022 | 8/29/2022 | SPY | Bear Call Spread | September 16, 2022 439/444 | $0.70 | $0.07 | 14.42% |
| 8/11/2022 | 8/29/2022 | DIA | Bear Call Spread | September 23, 2022 350/325 | $0.75 | $0.08 | 15.47% |
| 8/11/2022 | 9/8/2022 | IWM | Iron Condor | September 23, 2022 220/215 - 173/168 | $0.77 | $0.57 | 4.17% |
| 9/7/2022 | 9/9/2022 | QQQ | Bull Put Spread | October 21, 2022 260/255 | $0.62 | $0.30 | 6.84% |
| 9/9/2022 | 9/15/2022 | SPY | Bear Call Spread | October 21, 2022 430/435 | $0.75 | $0.25 | 11.11% |
| 9/13/2022 | 10/17/2022 | IWM | Iron Condor | October 21, 2022 208/203 - 163/158 | $0.77 | $0.30 | 10.40% |
| 10/3/2022 | 10/25/2022 | SPY | Bull Put Spread | November 18, 2022 325/320 | $0.54 | $0.09 | 9.89% |
| 10/4/2022 | 11/2/2022 | IWM | Iron Condor | November 18, 2022 198/203 - 143/138 | $0.64 | $0.32 | 6.84% |
| 10/6/2022 | 11/2/2022 | SPY | Bear Call Spread | November 18, 2022 412/416 | $0.43 | $0.28 | 3.90% |
| 11/16/2022 | 11/28/2022 | IWM | Iron Condor | December 16, 2022 205/200 - 162/157 | $0.75 | $0.24 | 11.36% |
| 11/10/2022 | 12/6/2022 | SPY | Bear Call Spread | December 16, 2022 420/425 | $0.65 | $0.14 | 11.36% |
| 12/1/2022 | 12/6/2022 | SPY | Bear Call Spread | January 20, 2023 435/440 | $0.67 | $0.18 | 10.86% |
| 12/13/2022 | 12/15/2022 | SPY | Bear Call Spread | January 20, 2023 430/435 | $0.54 | $0.17 | 7.99% |
| 12/7/2023 | 1/6/2023 | IWM | Iron Condor | January 20, 2023 202/198 - 160/156 | $0.70 | $0.06 | 19.00% |
| 1/4/2023 | 2/1/2023 | IWM | Iron Condor | February 17, 2023 200/195 - 154/149 | $0.65 | $2.00 | -27.00% |
| 1/6/2023 | 2/2/2023 | SPY | Bear Call Spread | February 17, 2023 415/420 | $0.60 | $2.50 | -38.00% |
| 2/2/2023 | 2/15/2023 | SPY | Bear Call Spread | March 17, 2023 440/445 | $0.63 | $0.15 | 10.62% |
| 2/10/2023 | 2/22/2023 | DIA | Bear Call Spread | March 31, 2023 355/360 | $0.70 | $0.17 | 11.86% |
| 2/2/2023 | 3/1/2023 | IWM | Iron Condor | March 17, 2023 175/180 - 215/220 | $0.72 | $0.51 | 4.38% |
| 3/6/2023 | 3/13/2023 | DIA | Bear Call Spread | April 21, 2023 350/355 | $0.85 | $0.17 | 15.74% |
| 2/23/2023 | 3/28/2023 | SPY | Iron Condor | April 21, 2023 435/430 - 350/345 | $0.80 | $0.15 | 14.94% |
| 3/23/2023 | 4/11/2023 | DIA | Bear Call Spread | April 21, 2023 338/443 | $0.62 | $2.05 | -28.60% |
| 3/23/2023 | 4/19/2023 | IWM | Iron Condor | May 19, 2023 196/191 - 147/142 | $0.83 | $0.23 | 13.64% |
| 4/12/2023 | 4/21/2023 | DIA | Bear Call Spread | May 19, 2023 350/355 | $0.82 | $0.44 | 8.23% |
| 4/21/2023 | 5/2/2023 | SPY | Iron Condor | June 16, 2023 440/435 - 365/360 | $0.95 | $0.63 | 6.84% |
| 4/24/2023 | 5/10/2023 | DIA | Bear Call Spread | June 16, 2023 354/359 | $0.72 | $0.22 | 11.11% |
| 5/5/2023 | 5/24/023 | SPY | Bear Call Spread | June 16, 2023 430/435 | $0.72 | $0.35 | 7.99% |
| 6/15/2023 | 6/22/2023 | SPY | Bear Call Spread | August 18, 2023 465/470 | $0.70 | $0.24 | 10.13% |
| 5/26/2023 | 6/23/2023 | IWM | Iron Condor | July 21, 2023 191/196 - 156/151 | $0.79 | $0.50 | 6.15% |
| 5/31/2023 | 7/12/2023 | QQQ | Bear Call Spread | July 21, 2023 375/380 | $0.60 | $1.80 | -31.60% |
| 128.30% | |||||||
Volatility Talk
Volatility finally made a return last week.
The investor’s fear gauge made a triumphant return as it closed the week at 17.10 and broke out of the 13 to 15 range it had been trading in for the past 2+ months. Now the question is, will we return to the market complacency we witnessed since early June when the VIX was stuck in the 13 to 15 range or will we return to the higher levels of premium we were accustomed prior to June 2023? If the VIX can manage to hold around these levels, if not a bit higher, we should see an abundance of premium selling opportunities return to the market.
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 August 7, 2023.
Here are the various levels I use to determine if an ETF is in an oversold or overbought state.
| Very Overbought | greater than or equal to 80.1 |
| Overbought | 60.1 to 80.0 |
| Neutral | 40.1 to 60 |
| Oversold | 20.1 to 40.0 |
| Very Oversold | less 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
| Exchange Traded Fund | Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought |
| ARK Innovation ETF | ARKK | 37.3 | 14.8 | 35.1 |
| ProShares Bitcoin ETF | BITO | 39.8 | -1.7 | 27.9 |
| SPDR Dow Jones | DIA | 12.1 | 14.5 | 42.9 |
| iShares MSCI Emerging Markets | EEM | 17.2 | 27.3 | 42.4 |
| iShares MSCI EAFE | EFA | 12.8 | 18.4 | 31.3 |
| iShares MSCI Mexico ETF | EWW | 28.5 | 21.5 | 45.3 |
| iShares MSCI Brazil | EWZ | 29.7 | 8.7 | 34.5 |
| iShares China Large-Cap | FXI | 33.4 | 14.1 | 52.5 |
| VanEck Gold Miners | GDX | 30.3 | 10 | 35.8 |
| SPDR Gold | GLD | 11.7 | 3.2 | 43.5 |
| iShares High-Yield | HYG | 7.4 | 16 | 44.4 |
| iShares Russell 2000 | IWM | 19.1 | 14.4 | 46.1 |
| SPDR Regional Bank | KRE | 32.6 | 12.8 | 65.7 |
| VanEck Oil Services | OIH | 30.8 | 4.9 | 67.5 |
| Invesco Nasdaq 100 | QQQ | 19.0 | 16.3 | 34.7 |
| iShares Silver Trust | SLV | 24.0 | 4.1 | 36.3 |
| VanEck Semiconductor | SMH | 28.3 | 21.3 | 40.7 |
| SPDR S&P 500 | SPY | 13.4 | 17.7 | 33.2 |
| iShares 20+ Treasury Bond | TLT | 14.3 | 28.5 | 32.9 |
| United States Oil Fund | USO | 27.9 | -1.1 | 72.4 |
| ProShares Ultra VIX Short | UVXY | 94.2 | 52.3 | 70.3 |
| CBOE Market Volatility Index | VIX | 87.3 | 6.6 | 76.6 |
| Barclays S&P 500 VIX ETN | VXX | 64.9 | 54.4 | 70.8 |
| SPDR Biotech | XLB | 15.0 | 2.8 | 39.9 |
| SPDR Energy Select | XLE | 22.5 | 6 | 65.4 |
| SPDR Financials | XLF | 15.4 | 8.4 | 43.9 |
| SPDR Utilities | XLU | 15.5 | 16.3 | 19.1 |
| SPDR S&P Oil & Gas Explorer | XOP | 28.8 | 5.6 | 73.3 |
| SPDR Retail | XRT | 23.4 | 17.6 | 51 |
Stock Watch List – Trade Ideas
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| Apple | AAPL | 23.8 | 15.8 | 18.7 |
| Bank of America | BAC | 26.7 | 8.6 | 48.4 |
| Bristol-Myers Squibb | BMY | 19.4 | 14.9 | 31.4 |
| Citigroup | C | 26.4 | 105.5 | 30.7 |
| Caterpillar | CAT | 25.2 | 4 | 61 |
| Comcast | CMCSA | 21.6 | 7.1 | 64.1 |
| Costco | COST | 19.7 | 17.8 | 42.7 |
| Cisco Systems | CSCO | 26.3 | 37.3 | 52.3 |
| Chevron | CVX | 23.7 | 6.6 | 48.5 |
| Disney | DIS | 36.7 | 43.9 | 45.6 |
| Duke Energy | DUK | 24.1 | 26.6 | 26.2 |
| FedEx | FDX | 25.7 | 12.5 | 48.9 |
| Gilead Sciences | GILD | 22.2 | 15.1 | 65.9 |
| General Motors | GM | 29.5 | 3.8 | 27.1 |
| Intel | INTC | 37.2 | 19 | 54.6 |
| Johnson & Johnson | JNJ | 24.3 | 62.9 | 51.1 |
| JPMorgan | JPM | 20.5 | 6.5 | 55.1 |
| Coca-Cola | KO | 14.6 | 11.3 | 31.1 |
| Altria Group | MO | 16.4 | 8.6 | 13.5 |
| Merck | MRK | 20.6 | 14.4 | 35.5 |
| Morgan Stanley | MS | 23.5 | 9.1 | 31.5 |
| Microsoft | MSFT | 27.5 | 27.5 | 35 |
| NextEra Energy | NEE | 26.1 | 20.2 | 20.1 |
| Nvidia | NVDA | 64.7 | 65.6 | 43.2 |
| Pfizer | PFE | 21.1 | 9.1 | 23.3 |
| PayPal | PYPL | 35.1 | 4.9 | 19.8 |
| Starbucks | SBUX | 21.8 | 11.2 | 41.7 |
| AT&T | T | 25.1 | 22.6 | 29.5 |
| Verizon | VZ | 24.1 | 25.5 | 29.5 |
| Walgreens Boots Alliance | WBA | 28 | 11.9 | 44.6 |
| Wells Fargo | WFC | 26.8 | 8.3 | 41.6 |
| Walmart | WMT | 22 | 34.8 | 48.3 |
| Exxon Mobil | XOM | 23 | 3.9 | 62.9 |
Weekly Trade Discussion: Open Positions
*Portfolio updated every Monday
Bear Call: SPY August 18, 2023, 462/466 calls
Original trade published on 6-30-2023 (click to see original alert)
Background: At the time of the trade, SPY was trading for 442.50. We sold the August 18, 2023, SPY 462/466 bear call spread for $0.52. The expected range or move was 428 to 457. We placed our bear call spread 5 points higher than the expected move.
Current Thoughts: What a difference a week makes. SPY finally decided to pull back last week and as a result, our bear call went from a 66% probability of success to 92.72%. With 12 days left until expiration our August 462/466 bear call spread is worth $0.19. There is a good chance I take profits off the table early this week and look for other opportunities to sell premium at higher levels of implied volatility.
Call Side:
Bear Call: SPY September 15, 2023, 470/475 calls
Original trade published on 8-4-2023 (click to see original alert)
Background: At the time of the trade, SPY was trading for 451.30. We sold the September 15, 2023, SPY 470/475 bear call spread for $0.65. The expected range or move was 436 to 466. We placed our bear call spread 4 points higher than the expected move. The probability of success at the time was 85.07%.
Current Thoughts: Shortly after our alert went out SPY began to move lower to close the trading day at 446.81. As a result, our probability of success stands at 88.77% and the current worth of our bear call stands at $0.47. Another push lower and we should have the opportunity to take some early profits off the table.
Call Side:
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.
The next Cabot Options Institute – Quant Trader issue will be published on
August 14, 2023.