COI Quant Trader Issue: February 5, 2024

Weekly Commentary

Not much to say this week. The plan remains simple. I continue to focus on balancing out the overall deltas of our current positions by adding a trade, most likely a bull put spread. I’ll be concentrating on sector ETFs and individual stocks as the major indices continue to see low levels of volatility.

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

Current Portfolio

Volatility Talk

Volatility picked up again last week, but still sits in “complacency” territory. What was interesting was the “fear gauge” didn’t push lower during the sharp rally to end the week. Typically, we would see the VIX significantly lower during such a rally, but that didn’t happen. In fact, the VIX held steady throughout the rally … a sign this rally could be nearing a short-term point of exhaustion.

As I stated over the past few weeks, I do think implied volatility will increase going forward. In fact, we could be seeing some of the lowest levels of volatility for 2024. Since 1992, there have only been four years where the VIX has not pushed above 20. The long-term average, according to the CBOE, is 20. As I’ve stated over the past few issues, I’m still looking at a variety of different volatility plays to take advantage of a potential pop in implied volatility over the next three to six months.

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 February 5, 2024.

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

Iron Condor: SPY March 15, 2024, 510/505 – 440/435
Original trade published on 1-16-2024 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 474. We sold the March 15, 2024, SPY 510/505 – 440/435 iron condor for $0.66. The expected range or move was 455 to 494. The probability of success at the time of the trade was 91.07% on the call side and 86.77% on the put side.

Current Thoughts: The SPY now it sits at 494.35. Admittedly, we are still early in the trade, but the probability sits at a somewhat precarious 69.22% on the call side and 94.82% on the put side. While there isn’t anything to do at the moment, a continued push to the upside and we will need to make an adjustment to our position.

Call Side:

Put Side:

Bear Call: QQQ March 1, 2024, 445/450
Original trade published on 1-23-2024 (click to see original alert)

Background: At the time of the trade, QQQ was trading for roughly 422.16. We sold the March 1, 2024, QQQ 445/450 iron condor for $0.60. The expected range or move was 405 to 440. The probability of success at the time of the trade was 85.41% on the call side.

Current Thoughts: QQQ now sits slightly higher at 429.01. Our probability sits comfortably at 80.17% on the call side. There are 26 days left until our position is due to expire. If we see a move to the downside over the next week or so, we should be able to take off our trade for a nice return. Until then, there isn’t much to do at the moment other than to allow time decay to work its magic.

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 February 12, 2024.

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