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Quant Trader
Expert-Level Options for Sophisticated Traders

COI Quant Trader Issue: January 8, 2024

Our SPY bear call spread is due to expire in 10 days. The probabilities on the trade stand at roughly 74% with two weeks left until expiration. A push lower early this week and we should be able to lock in a nice return on the trade.

I also plan on adding an iron condor to the mix this week and potentially a bull put spread in one of the stocks we follow on our watch list. Some stocks, unlike most indexes, have seen a return of volatility, as reflected by their higher IV ranks, so there is a good chance we will pounce on one of those opportunities this week.

Weekly Commentary

Our SPY bear call spread is due to expire in 10 days. The probabilities on the trade stand at roughly 74% with two weeks left until expiration. A push lower early this week and we should be able to lock in a nice return on the trade.

I also plan on adding an iron condor to the mix this week and potentially a bull put spread in one of the stocks we follow on our watch list. Some stocks, unlike most indexes, have seen a return of volatility, as reflected by their higher IV ranks, so there is a good chance we will pounce on one of those opportunities this week.

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 $2.37 48.90%-0.14
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

Even with the pullback last week, complacency continues to dominate the psyche of market participants. Again, this is clearly seen through the “performance” of the volatility index, or VIX.

However, the pullback has increased the implied volatility in quite a few high options volume, blue-chip stocks so opportunities are once again rearing their head … thankfully. It would still be nice to see the volatility in SPY and all of the other major indexes we follow (DIA, QQQ, IWM, etc.) push to slightly elevated levels. Although, I’ll take just “normal” levels of volatility at this point.

COI_QT_010824_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 January 8, 2024.

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 ETFARKK40.53134.7
ProShares Bitcoin ETFBITO76.663.354.2
SPDR Dow JonesDIA12.618.256.6
iShares MSCI Emerging MarketsEEM16.818.543.4
iShares MSCI EAFEEFA12.616.545.3
iShares MSCI Mexico ETFEWW20.643.351.3
iShares MSCI BrazilEWZ24.89.248.3
iShares China Large-CapFXI29.11741.9
VanEck Gold MinersGDX33.342.532.5
SPDR Gold GLD15.426.647.2
iShares High-YieldHYG7.621.737.1
iShares Russell 2000IWM22.938.235.7
SPDR Regional BankKRE32.41950.6
VanEck Oil ServicesOIH28.814.142.6
Invesco Nasdaq 100QQQ17.314.431.4
iShares Silver TrustSLV27.322.932.8
VanEck SemiconductorSMH25.325.834.9
SPDR S&P 500 SPY 13.010.440.4
iShares 20+ Treasury BondTLT16.626.934.7
United States Oil FundUSO33.341.157.6
ProShares Ultra VIX ShortUVXY92.17.935.4
CBOE Market Volatility IndexVIX93.845.653.2
Barclays S&P 500 VIX ETNVXX63.59.436.8
SPDR BiotechXLB14.122.442.9
SPDR Energy Select XLE21.39.450.5
SPDR FinancialsXLF15.811.364.1
SPDR UtilitiesXLU18.231.665.8
SPDR S&P Oil & Gas ExplorerXOP27.013.545
SPDR Retail XRT24.933.134.8

Stock Watch List – Trade Ideas

Stock - Quant TraderTicker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL19.734.611.9
Bank of AmericaBAC30.420.773.5
Bristol-Myers SquibbBMY26.887.958.5
CitigroupC30.723.788.7
CaterpillarCAT25.027.054.4
ComcastCMCSA31.051.138.3
CostcoCOST19.421.759.6
Cisco SystemsCSCO16.65.549.2
ChevronCVX23.233.252.9
DisneyDIS25.132.346
Duke EnergyDUK18.526.771
FedExFDX23.30.531.5
Gilead SciencesGILD26.346.566
General MotorsGM30.135.360.5
IntelINTC42.863.243.7
Johnson & JohnsonJNJ19.662.377.5
JPMorganJPM21.419.781.3
Coca-ColaKO15.128.664.1
Altria GroupMO19.333.160.3
MerckMRK19.333.391.8
Morgan StanleyMS27.226.965.2
MicrosoftMSFT26.449.032.6
NextEra EnergyNEE32.155.967.1
NvidiaNVDA35.93.356.4
PfizerPFE28.882.662.6
PaypalPYPL36.752.545.4
StarbucksSBUX20.874.126.9
AT&TT28.447.979.4
VerizonVZ25.143.786.9
Walgreens Boots AllianceWBA5340.245.7
Wells FargoWFC29.319.165.7
WalmartWMT17.227.348.5
Exxon MobilXOM24.323.857.6

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: At 467.92, SPY is roughly $9.50 higher since we added our bear call spread. If you recall, last week it was $17 higher. The pullback last week helped to put our position in a potentially profitable situation. Our probability of success on the trade stands at 74.41%. The price of the bear call spread is currently $0.98. If we see an additional pullback early in the week or if SPY simply stays below $470 for a few more days, accelerated time decay should allow us to take off the position for a decent profit.

Call Side:

COI_QT_010824_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 January 16, 2024.

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.