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Quant Trader
Expert-Level Options for Sophisticated Traders

COI Quant Trader Issue: December 4, 2023

We have two open positions, both bear call spreads, with the intent of opening up another position this week. My hope is to add a bull put spread or iron condor to the mix, but with implied volatility (IV) mostly low across the board due to extreme short-term overbought conditions, our opportunities, at least at the moment, are limited. I’ve been looking at a few potential volatility plays based purely on IV increasing over the next few months. I’ve also been looking at a few stocks that have IV around the 30% to 35% mark, if not higher. Ultimately, I want to balance out our deltas, as we don’t want to lean too heavily in one direction. At the moment, our deltas are leaning to the short side, so we hope to balance those out a bit as the week progresses.

Weekly Commentary

We have two open positions, both bear call spreads, with the intent of opening up another position this week. My hope is to add a bull put spread or iron condor to the mix, but with implied volatility (IV) mostly low across the board due to extreme short-term overbought conditions, our opportunities, at least at the moment, are limited. I’ve been looking at a few potential volatility plays based purely on IV increasing over the next few months. I’ve also been looking at a few stocks that have IV around the 30% to 35% mark, if not higher. Ultimately, I want to balance out our deltas, as we don’t want to lean too heavily in one direction. At the moment, our deltas are leaning to the short side, so we hope to balance those out a bit as the week progresses.

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

Current Portfolio

Open DateTickerStrategyTradeOpen PriceCurrent PriceCurrent ProbabilityDelta
12/1/2023SPYBear CallJanuary 19, 2024 475/480$0.75 $0.89 79.63%-0.07
11/6/2023SPYBear CallDecember 15, 2023 456/461$0.58 $2.95 39.61%-0.15
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%

Volatility Talk

The VIX continued to plummet last week, closing at a multi-year low of 12.46. The new low displays the ongoing complacency in the market that has been prevalent since April. Even the recent three-month sell-off (August to October) couldn’t push the VIX into “fear” territory. The question is, with all of the major indices in short-term overbought territory and an incredibly oversold VIX, will we see some “normalcy” return to the market? The recent rally has been sharp and fast with the S&P seeing gains of nearly 10% since the beginning of November, so a pullback is almost expected at this point.

COI_QT_120423_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 4, 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 ETFARKK38.318.179.1
Proshares Bitcoin ETFBITO58.252.560.5
SPDR Dow JonesDIA11.811.891.2
iShares MSCI Emerging MarketsEEM17.926.264
iShares MSCI EAFEEFA14.010.682.5
iShares MSCI Mexico ETFEWW19.915.474.8
iShares MSCI BrazilEWZ30.315.173.5
iShares China Large-CapFXI29.212.928.8
Vaneck Gold MinersGDX34.844.487.1
SPDR Gold GLD16.85081.4
iShares High-YieldHYG7.42.681.3
iShares Russell 2000IWM20.82678.2
SPDR Regional BankKRE31.920.382.3
Vaneck Oil ServicesOIH28.28.949
Invesco Nasdaq 100QQQ16.54.969.9
iShares Silver TrustSLV27.732.584.8
Vaneck SemiconductorSMH23.011.657.6
SPDR S&P 500 SPY 12.87.184.4
iShares 20+ Treasury BondTLT18.030.869.3
United States Oil FundUSO37.743.337.5
Proshares Ultra VIX ShortUVXY95.013.122.7
CBOE Market Volatility IndexVIX84.627.229.3
Barclays S&P 500 VIX ETNVXX64.814.222.6
SPDR BiotechXLB13.810.890.2
SPDR Energy Select XLE21.18.656.1
SPDR FinancialsXLF14.61.389.8
SPDR UtilitiesXLU17.123.373.1
SPDR S&P Oil & Gas ExplorerXOP25.98.451.3
SPDR Retail XRT25.627.281.7

Stock Watch List – Trade Ideas

Stock - Quant TraderTicker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL18.51.569.4
Bank of AmericaBAC23.87.482.7
Bristol-Myers SquibbBMY21.650.453.4
CitigroupC23.52.985.7
CaterpillarCAT22.37.274.8
ComcastCMCSA21.916.152
CostcoCOST19.625.066.4
Cisco SystemsCSCO15.35.540.1
ChevronCVX20.914.350.4
DisneyDIS21.34.350.8
Duke EnergyDUK17.816.875.8
FedexFDX31.332.178.1
Gilead SciencesGILD26.47.365.9
General MotorsGM29.79.184.7
IntelINTC39.48.459
Johnson & JohnsonJNJ15.920.885.1
JP MorganJPM15.90.189.2
Coca-ColaKO12.87.872.9
Altria GroupMO16.210.185.8
MerckMRK18.39.263.6
Morgan StanleyMS21.04.070.6
MicrosoftMSFT20.22.351.5
Nextera EnergyNEE25.231.771.4
NvidiaNVDA33.00.137.6
PfizerPFE26.048.832.5
PaypalPYPL31.912.770.1
StarbucksSBUX17.49.427.3
AT&TT197.289.4
VerizonVZ17.32.792.5
Walgreens Boots AllianceWBA439154.8
Wells FargoWFC22.30.187.1
WalmartWMT17.124.132.3
Exxon MobilXOM21.69.540.1

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 remains in short-term overbought territory. And this should be no surprise given SPY’s historic November. We are early in the trade so there really isn’t much to discuss at the moment.

Call Side:

COI_QT_120423_SPY_bearcall_Jan19.png

Bear Call Spread: SPY December 15, 2023, 456/461

Original trade published on 11-6-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 435.36. We sold the December 15, 2023, SPY 456/461 bear call spread for $0.58. The expected range or move was 419 to 451. The probability of success at the time of the trade was 86.49% on the call side.

Current Thoughts: SPY now sits at 459.10. SPY’s relentless push higher since late October has pushed our probability of success from 86.49% to where it stands now, 40.63%. If we manage to see any decent downside from here, we should be able to get out of our position. Our bear call spread currently sits at $2.90 and if it kicks up slightly higher, I plan to bail on the trade.

SPY is currently in a short-term overbought extreme state, but it’s been sitting there for quite some time. I continue to expect a pullback to close at least one of the recent gaps, but the problem, at least for this position, is that we could see a continuation of this rally before a reprieve occurs. Regardless of my thoughts on the market, unless we see an immediate pullback, we will be forced to exit our position, take a loss and move on to the next opportunity.

COI_QT_120423_SPY_bearcall_Dec15.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 11, 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.