Weekly Commentary
Over the past several weeks I’ve heard the phrase “the animal spirits have returned” at least six or seven times. Okay, I’ll give you one or two, but seven?
The overall market ends the month with another nice return. The S&P 500, the Nasdaq 100, and the Dow Jones were up 3.0%, 3.8% and 3.1%, respectively, in July. It’s been a tremendous run and one we should be excited about for a variety of reasons. Since mid-March the S&P 500 has gained 19.6% and now sits just 5.0% below its all-time high. To put things in perspective we are looking at one the best years over the past two decades … and one that is currently outperforming 2021 (solid green line).
Basically, since the start of 2022, the market moved lower for 9.5 months and has done the exact opposite over the past 9.5 months.
During that time we’ve seen volatility, as seen through the VIX, push from closing highs of just under 36 down to where it’s currently trading at 13.33, with seven straight weeks well below 15. Complacency has set in and, well, it makes perfect sense, right? After a barrage of inflationary concerns and a Fed response that led to a historic string of interest rate hikes as the reality of a recession seemingly neared, market sentiment is finally back in the bull’s corner. Five straight months of gains in which the last two months haven’t seen a decline that exceeds 1% certainly helps the cause.
As for our positions, I’ve yet to sell any further premium for the September expiration cycle. If the market cooperates, my intent is to sell an iron condor and a bull put spread both in September, possibly staggered over several expiration cycles.
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 |
| 6/30/2023 | SPY | Bear Call | August 18, 2023 462/466 | $0.52 | $1.32 | 6439.00% | -0.13 |
| 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% |
Volatility Talk
Volatility continues to bounce between 13 and 15, but tends to spend most of the time hovering above the low portion of the range. As I said above, five straight months of exceptional gains across the board for the market with the last two months not seeing a decline that exceeds 1%. Yes, complacency is here, but for good reason, right? All is currently well in the market. But, we are well aware, or at least we should be, the market doesn’t go straight up or down forever.
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 July 31, 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 | 4.8 | 61.5 |
| ProShares Bitcoin ETF | BITO | 39.8 | 4.1 | 40.4 |
| SPDR Dow Jones | DIA | 12.1 | 1.6 | 71.2 |
| iShares MSCI Emerging Markets | EEM | 17.2 | 15.2 | 70.2 |
| iShares MSCI EAFE | EFA | 12.8 | 16.7 | 68.1 |
| iShares MSCI Mexico ETF | EWW | 28.5 | 4.9 | 75.7 |
| iShares MSCI Brazil | EWZ | 29.7 | 4.8 | 57.9 |
| iShares China Large-Cap | FXI | 33.4 | 13.2 | 75.6 |
| VanEck Gold Miners | GDX | 30.3 | 7.3 | 41.9 |
| SPDR Gold | GLD | 11.7 | 2.6 | 51.6 |
| iShares High-Yield | HYG | 7.4 | 4.2 | 54.5 |
| iShares Russell 2000 | IWM | 19.1 | 0.7 | 63.5 |
| SPDR Regional Bank | KRE | 32.6 | 12.6 | 70.2 |
| VanEck Oil Services | OIH | 30.8 | 1.4 | 71 |
| Invesco Nasdaq 100 | QQQ | 19.0 | 1.5 | 67.4 |
| iShares Silver Trust | SLV | 24.0 | 2.5 | 48.7 |
| VanEck Semiconductor | SMH | 28.3 | 12.3 | 67.3 |
| SPDR S&P 500 | SPY | 13.4 | 1.3 | 69.7 |
| iShares 20+ Treasury Bond | TLT | 14.3 | 4.1 | 36.1 |
| United States Oil Fund | USO | 27.9 | 1.8 | 78.2 |
| ProShares Ultra VIX Short | UVXY | 94.2 | 9.4 | 34.9 |
| CBOE Market Volatility Index | VIX | 87.3 | 19.4 | 43.5 |
| Barclays S&P 500 VIX ETN | VXX | 64.9 | 12.4 | 36.2 |
| SPDR Biotech | XLB | 15.0 | 4.8 | 68.4 |
| SPDR Energy Select | XLE | 22.5 | 0 | 70.8 |
| SPDR Financials | XLF | 15.4 | 0 | 58.2 |
| SPDR Utilities | XLU | 15.5 | 4.9 | 47.2 |
| SPDR S&P Oil & Gas Explorer | XOP | 28.8 | 1.3 | 77.5 |
| SPDR Retail | XRT | 23.4 | 12.6 | 61.9 |
Stock Watch List – Trade Ideas
| Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought | |
| Apple | AAPL | 25.1 | 17.5 | 67.1 |
| Bank of America | BAC | 23.5 | 1.1 | 63.8 |
| Bristol-Myers Squibb | BMY | 19.2 | 5.4 | 35.4 |
| Citigroup | C | 23.0 | 0.1 | 53.4 |
| Caterpillar | CAT | 28.5 | 17 | 60.9 |
| Comcast | CMCSA | 19.0 | 0.7 | 79.8 |
| Costco | COST | 17.1 | 6.9 | 72.5 |
| Cisco Systems | CSCO | 24.9 | 32.7 | 46.4 |
| Chevron | CVX | 22.6 | 1.4 | 52.5 |
| Disney | DIS | 35.7 | 37 | 42.9 |
| Duke Energy | DUK | 21.6 | 13.5 | 49.3 |
| FedEx | FDX | 22.9 | 3.8 | 69.8 |
| Gilead Sciences | GILD | 25.9 | 25.8 | 42.7 |
| General Motors | GM | 28.0 | 3 | 40.4 |
| Intel | INTC | 33.6 | 6.3 | 78.5 |
| Johnson & Johnson | JNJ | 20.0 | 43.6 | 88.2 |
| JPMorgan | JPM | 17.7 | 1.5 | 67.3 |
| Coca-Cola | KO | 12.3 | 6.3 | 63.1 |
| Altria Group | MO | 17.1 | 9.6 | 49.8 |
| Merck | MRK | 22.7 | 32 | 41.3 |
| Morgan Stanley | MS | 20.7 | 0.7 | 52.8 |
| Microsoft | MSFT | 25.6 | 20.2 | 45.4 |
| NextEra Energy | NEE | 23.2 | 10.5 | 39.7 |
| Nvidia | NVDA | 62.5 | 58.4 | 66.1 |
| Pfizer | PFE | 23.3 | 20.7 | 37.3 |
| PayPal | PYPL | 47.3 | 27.8 | 62.9 |
| Starbucks | SBUX | 31.1 | 38.9 | 49.7 |
| AT&T | T | 23.5 | 16 | 39.9 |
| Verizon | VZ | 21.4 | 14.8 | 48.2 |
| Walgreens Boots Alliance | WBA | 27.2 | 8.2 | 40.7 |
| Wells Fargo | WFC | 24.1 | 2.2 | 59.7 |
| Walmart | WMT | 20.4 | 27.6 | 73.2 |
| Exxon Mobil | XOM | 23.3 | 3 | 48.4 |
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: SPY continues to trudge higher and is now testing our stop-loss. SPY is now trading for 456.92, roughly $14 higher than when we placed the trade. The probability of success on our bear call sits at 66.11% and the delta of our short call sits at 0.35. With 19 days left until expiration our SPY bear call spread is teetering. Time decay has kicked in and is accelerating as each day passes so that’s certainly a positive for our position. But gamma is also accelerating. In options terms, gamma is the rate of change in an option’s delta per one point move in the underlying asset’s price. Basically, the price of our bear call spread becomes far more sensitive as we get closer and closer to expiration in 19 days. But that works both ways, right? If our position manages to stay around this area, fall lower, or even rise a little, we should be in good shape. If we see another big move higher, I’ll be getting out of the trade at my stop-loss and moving on to the next opportunity.
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 7, 2023.