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Quant Trader
Expert-Level Options for Sophisticated Traders

COI Quant Trader Issue: December 18, 2023

We currently have one open position, a SPY bear call spread due to expire in the January 19, 2024, expiration cycle. My hope is to add one, if not two more trades for the January 31, 2024, expiration cycle. The challenge is finding a highly liquid ETF or stock with a decent IV rank, and therefore, at least in most cases, some decent options premium. If premium just isn’t there, we might have to extend the duration on the trade, possibly going out to the February 16, 2024, expiration cycle. Either way, I intend on adding an iron condor, and hopefully a bull put spread to the mix. Of course, a slight pullback would make things easier.

Weekly Commentary

We currently have one open position, a SPY bear call spread due to expire in the January 19, 2024, expiration cycle. My hope is to add one, if not two more trades for the January 31, 2024, expiration cycle. The challenge is finding a highly liquid ETF or stock with a decent IV rank, and therefore, at least in most cases, some decent options premium. If premium just isn’t there, we might have to extend the duration on the trade, possibly going out to the February 16, 2024, expiration cycle. Either way, I intend on adding an iron condor, and hopefully a bull put spread to the mix. Of course, a slight pullback would make things easier.

On another note, I’m looking at a few different volatility plays. With the VIX hitting four-year lows last week, I wouldn’t mind having a bit of volatility exposure just in case volatility popped over the next three to six months. I’ll send out an alert, if and when, I decide to take a position.

As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

Current Portfolio

Open Trades

Open DateTickerStrategyTradeOpen PriceCurrent PriceCurrent ProbabilityDelta
12/1/2023SPYBear CallJanuary 19, 2024 475/480$0.75 $1.95 58.26%-0.13
Open DateClosed DateTickerStrategy TradeOpen PriceClosing PriceReturn
6/2/20226/13/2022SPYBear Call SpreadJuly 15, 2022 440/445 $0.70 $0.05 14.94%
6/8/20226/17/2022XOPBear Call SpreadJuly 15, 2022 190/195$0.70 $0.04 15.21%
6/22/20227/13/2022SPYBear Call SpreadJuly 29, 2022 405/410$0.75 $0.35 8.70%
6/30/20227/25/2022IWMIron CondorAugust 19, 2022 195/200 - 145/140$0.70 $0.34 7.76%
7/8/20227/28/2022GLDBull Put SpreadAugust 19, 2022 155/150 $0.60 $0.16 9.65%
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 $0.07 14.42%
8/11/20228/29/2022DIABear Call SpreadSeptember 23, 2022 350/325$0.75 $0.08 15.47%
8/11/20229/8/2022IWMIron CondorSeptember 23, 2022 220/215 - 173/168$0.77 $0.57 4.17%
9/7/20229/9/2022QQQBull Put SpreadOctober 21, 2022 260/255$0.62 $0.30 6.84%
9/9/20229/15/2022SPYBear Call SpreadOctober 21, 2022 430/435$0.75 $0.25 11.11%
9/13/202210/17/2022IWMIron CondorOctober 21, 2022 208/203 - 163/158$0.77 $0.30 10.40%
10/3/202210/25/2022SPYBull Put SpreadNovember 18, 2022 325/320 $0.54 $0.09 9.89%
10/4/202211/2/2022IWMIron CondorNovember 18, 2022 198/203 - 143/138$0.64 $0.32 6.84%
10/6/202211/2/2022SPYBear Call SpreadNovember 18, 2022 412/416$0.43 $0.28 3.90%
11/16/202211/28/2022IWMIron CondorDecember 16, 2022 205/200 - 162/157$0.75 $0.24 11.36%
11/10/202212/6/2022SPYBear Call SpreadDecember 16, 2022 420/425$0.65 $0.14 11.36%
12/1/202212/6/2022SPYBear Call SpreadJanuary 20, 2023 435/440$0.67 $0.18 10.86%
12/13/202212/15/2022SPYBear Call SpreadJanuary 20, 2023 430/435$0.54 $0.17 7.99%
12/7/20231/6/2023IWMIron CondorJanuary 20, 2023 202/198 - 160/156$0.70 $0.06 19.00%
1/4/20232/1/2023IWMIron CondorFebruary 17, 2023 200/195 - 154/149$0.65 $2.00 -27.00%
1/6/20232/2/2023SPYBear Call SpreadFebruary 17, 2023 415/420 $0.60 $2.50 -38.00%
2/2/20232/15/2023SPYBear Call SpreadMarch 17, 2023 440/445$0.63 $0.15 10.62%
2/10/20232/22/2023DIABear Call SpreadMarch 31, 2023 355/360$0.70 $0.17 11.86%
2/2/20233/1/2023IWMIron CondorMarch 17, 2023 175/180 - 215/220$0.72 $0.51 4.38%
3/6/20233/13/2023DIABear Call SpreadApril 21, 2023 350/355$0.85 $0.17 15.74%
2/23/20233/28/2023SPYIron CondorApril 21, 2023 435/430 - 350/345$0.80 $0.15 14.94%
3/23/20234/11/2023DIABear Call SpreadApril 21, 2023 338/443$0.62 $2.05 -28.60%
3/23/20234/19/2023IWMIron CondorMay 19, 2023 196/191 - 147/142$0.83 $0.23 13.64%
4/12/20234/21/2023DIABear Call SpreadMay 19, 2023 350/355$0.82 $0.44 8.23%
4/21/20235/2/2023SPYIron CondorJune 16, 2023 440/435 - 365/360$0.95 $0.63 6.84%
4/24/20235/10/2023DIABear Call SpreadJune 16, 2023 354/359$0.72 $0.22 11.11%
5/5/20235/24/023SPYBear Call SpreadJune 16, 2023 430/435$0.72 $0.35 7.99%
6/15/20236/22/2023SPYBear Call SpreadAugust 18, 2023 465/470$0.70 $0.24 10.13%
5/26/20236/23/2023IWMIron CondorJuly 21, 2023 191/196 - 156/151$0.79 $0.50 6.15%
5/31/20237/12/2023QQQBear Call SpreadJuly 21, 2023 375/380$0.60 $1.80 -31.60%
6/30/20238/7/2023SPYBear Call SpreadAugust 18, 2023 462/466$0.52 $0.23 7.82%
8/4/20238/11/2023SPYBear Call SpreadSeptember 15, 2023 470/475$0.65 $0.20 9.90%
8/17/20239/13/2023SPYIron CondorOctober 20, 2023 475/470 - 390/385$0.72 $0.25 10.38%
9/6/202310/11/2023IWMIron CondorOctober 20, 2023 204/199 - 169/164$0.62 $0.19 9.41%
* 9/29/202310/27/2023SPYBear Call SpreadNovember 17, 2023 452/457$0.74 $0.03 16.60%
*10/6/202311/3/2023SPYBull Put SpreadNovember 17, 2023 408/403$0.58 $0.03 12.36%
* 10/27/202311/3/2023SPYBear Call SpreadNovember 17, 2023 430/435$0.58 $3.50 -33.20%
10/31/202311/14/2023SPYIron CondorDecember 15, 2023 450/445 - 380/375$0.77 $3.00 -44.60%
11/6/202312/8/2023SPYBear Call SpreadDecember 15, 2023 456/461$0.58 $3.08 -50.00%

Volatility Talk

Volatility, as seen through the VIX, hit its lowest point since 2019. And it’s really of no surprise, given the recent two-month, 15%+ rally in the S&P 500. The question is, will complacency continue to dominate the VIX, and if so, for how long?

We are starting to see lots of mixed signals. While sentiment has shifted to the bull side, and quite quickly, the “bandwagon” effect is rearing its head. And while it will be an interesting battle between the bulls and bear going forward, there is no doubt complacency is currently dominating the psyche of market participants and this is clearly seen through the “performance” of the volatility gauge. So, for those that use options selling strategies, opportunities become more challenging. Remember, volatility is a major component of the options pricing model, so when volatility is low, so are options prices (premium).

COI_QT_121823_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 December 18, 2023.

Here are the various levels I use to determine if an ETF is in an oversold or overbought state.

Very Overboughta reading greater than or equal to 80.0
Overboughtgreater than or equal to 60.0
Neutralbetween 40 to 60
Oversoldless than or equal 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

Exchange Traded FundTicker Symbol IVIV Rank HPMR Oversold - Overbought
ARK Innovation ETFARKK41.129.571.4
ProShares Bitcoin ETFBITO77.553.354.4
SPDR Dow JonesDIA10.84.887.7
iShares MSCI Emerging MarketsEEM18.117.865.3
iShares MSCI EAFEEFA12.18.267.7
iShares MSCI Mexico ETFEWW20.924.986.4
iShares MSCI BrazilEWZ31.613.361.1
iShares China Large-CapFXI30.223.140.66
VanEck Gold MinersGDX31.133.559.2
SPDR Gold GLD13.726.651.5
iShares High-YieldHYG6.912.776.1
iShares Russell 2000IWM21.331.380.4
SPDR Regional BankKRE31.819.179.4
VanEck Oil ServicesOIH28.711.259.1
Invesco Nasdaq 100QQQ15.80.984.3
iShares Silver TrustSLV26.525.650.8
VanEck SemiconductorSMH23.714.386.2
SPDR S&P 500 SPY 12.23.274.6
iShares 20+ Treasury BondTLT17.830.882.6
United States Oil FundUSO36.942.148.6
ProShares Ultra VIX ShortUVXY94.813.132.3
CBOE Market Volatility IndexVIX87.547.338.8
Barclays S&P 500 VIX ETNVXX64.813.133.2
SPDR BiotechXLB13.847.379.5
SPDR Energy Select XLE21.016.358.7
SPDR FinancialsXLF14.87.579.6
SPDR UtilitiesXLU17.8852.1
SPDR S&P Oil & Gas ExplorerXOP26.4357.8
SPDR Retail XRT24.328.875.1

Stock Watch List – Trade Ideas

Stock - Quant TraderTicker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL17.80.969
Bank of AmericaBAC29.522.682.4
Bristol-Myers SquibbBMY25.873.753.7
CitigroupC29.519.373.4
CaterpillarCAT22.89.394.5
ComcastCMCSA27.922.674.9
CostcoCOST18.425.182.6
Cisco SystemsCSCO17.17.567.2
ChevronCVX21.818.870.4
DisneyDIS24.313.758.1
Duke EnergyDUK15.24.767.2
FedExFDX29.532.791.6
Gilead SciencesGILD29.821.155.9
General MotorsGM30.111.679.5
IntelINTC33.516.774.3
Johnson & JohnsonJNJ16.935.050.2
JPMorganJPM20.512.391.6
Coca-ColaKO15.522.645.8
Altria GroupMO16.616.552
MerckMRK19.414.054.5
Morgan StanleyMS24.012.990.7
MicrosoftMSFT20.55.547.8
NextEra EnergyNEE27.036.963.7
NvidiaNVDA35.77.164.9
PfizerPFE26.546.225.1
PayPalPYPL35.823.565.9
StarbucksSBUX19.617.133.4
AT&TT24.830.247.6
VerizonVZ21.724.244.8
Walgreens Boots AllianceWBA55.790.686.9
Wells FargoWFC27.113.290.3
WalmartWMT17.525.443.7
Exxon MobilXOM23.617.251.1

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Bear Call Spread: SPY January 19, 2024, 475/480

Original trade published on 12-1-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 458.50. We sold the January 19, 2024, SPY 475/480 bear call spread for $0.75. The expected range or move was 442 to 472. The probability of success at the time of the trade was 82.51% on the call side.

Current Thoughts: SPY is roughly $11 higher since we added our bear call spread. As a result, our probability of success on the trade stands at 57.31%. The price of the bear call spread is currently $1.95, very close to our stop-loss area of roughly $2.25. We need to see a short-term pullback to get this trade back on the dancefloor.

Call Side:

COI_QT_121823_SPY_bearcall.png

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 December 26, 2023.

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.