COI Quant Trader Issue: June 26, 2023

Weekly Commentary

*Note: With next Tuesday being the Fourth of July holiday, Cabot has graciously given us next Monday, July 3, off as well as sort of a midyear mini-break on the heels of a chaotic – but quite profitable – first half of 2023. So, your next issue of Cabot Options Institute Quant Trader will arrive in your inbox next Wednesday, July 5.

The eight-week rally in the market-leading Nasdaq 100 (QQQ) ended last week as the tech-heavy index finally surrendered to short-term overbought conditions. Makes sense…because over that period of time QQQ saw returns of just under 15%, well over a third of the 37.9% year-to-date returns.

The pullback led us to lock in profits in our August 18, 2023 SPY 465/470 bear call spread and our July 21, 2023 IWM 196/191 – 156/151 iron condor. We locked in 10.1% and 6.2%, respectively, to bring our total returns to 159.9%. Our win ratio stands at 88.6% (31/35 winning trades) since we launched Quant Trader on June 2, 2022.

I appreciate all of the emails as of late, but the win rate should be of no surprise. As I talk about often, we rely on the law of large numbers to lead the way. And since we place trades with an 85% to 90% probability of success our win ratio will follow suit. When using high-probability strategies, overall long-term success isn’t due to the high win rate, it’s defined by your risk management skills and determination to stay mechanical and disciplined through what we call “sequence risk.” Losing trades are a guarantee when trading any strategy, and this strategy is no different. My hope is that through our journey, your one takeaway is how important it is to be disciplined in your approach to risk management. If you are able to truly master this skill, long-term success isn’t far behind.

My focus this week will be to sell more premium for the August 18, 2023 expiration cycle. I will most likely add another iron condor to the mix, and if we see a continuation of the pullback, I’ll look to take off our QQQ bear call spread, lock in profits and add a bull put spread to the portfolio.

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

Current Portfolio

Volatility Talk

Well, we broke 13 last week for the first time in several years. The pullback towards the latter part of the week kicked the VIX higher, but prior to the move we were witnessing a consistent, daily “pop and drop” in the investors’ fear gauge. In theory, at these levels, complacency has set in. I can’t help but believe this is just temporary. But if you asked me one year ago when the VIX was sitting at 15, I would have told you the same thing.

Seasonally speaking, the VIX is due for a bounce. Just remember, seasonal tendencies are simply gentle winds blowing on the backs of our directional bias.

However, if we do see the seasonal tendency of a rise in the VIX play out over the coming months it just means we should expect to see a reprieve in the market. What that “reprieve” looks like is anyone’s guess. And really, for our approach, we don’t care what the reprieve looks like, we only care that there is a return in implied volatility (IV). Higher IV means higher options prices (premium) and we always prefer to sell options at higher prices than usual.

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 June 26, 2023.

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

Bear Call: QQQ July 21, 2023, 375/380 calls

Original trade published on 5-31-2023 (click to see original alert)

Background: At the time of the trade, QQQ was trading for 347.14. We sold the July 21, 2023, QQQ 375/380 bear call spread for $0.60. The expected range or move was 326 to 368. We placed our bear call spread 7 points higher than the expected move.

Current Thoughts: QQQ is now trading for 362.54, $5 lower than it was last week, and our bear call spread is worth $1.07. The probability of success on our bear call sits at 75.78% and the delta of our short call sits at a comfortable 0.26. With 26 days left until expiration our QQQ bear call spread looks in good shape. Time decay will begin to accelerate this week, so if all goes well and QQQ stays around this area, or moves lower, we should be able to lock in our third successful trade for the July 21 expiration cycle.

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

July 5, 2023.