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Quant Trader
Expert-Level Options for Sophisticated Traders

COI Quant Trader Issue: March 18, 2024

We are finally through March expiration and volatility continues to remain at low levels. Volatility is starting to perk up a little, but the VIX still sits below 15, at 14.41. Until we see a sustained push towards the 18 handle, we should expect to see market complacency rule the day. A return to more normal levels of volatility (18 to 22) would allow us to expand our positions. Until then, we patiently wait for Mr. Market, and more importantly, probabilities, to lead the way.

Weekly Commentary

We are finally through March expiration and volatility continues to remain at low levels. Volatility is starting to perk up a little, but the VIX still sits below 15, at 14.41. Until we see a sustained push towards the 18 handle, we should expect to see market complacency rule the day. A return to more normal levels of volatility (18 to 22) would allow us to expand our positions. Until then, we patiently wait for Mr. Market, and more importantly, probabilities, to lead the way.

After a tough bout with sequence risk over the past several trades, it seems as though the probabilities might have shifted in our favor. Time will tell, but it’s nice to finally be sitting on a profitable trade in our most recent bear call spread in SPY. I intend to lean a little more bearish over the next expiration due to all the factors we discussed in our latest subscriber-only webinar. I also intend to add a trade that should take advantage of volatility expansion over the next several months, but we need to spend a few days above 15 before I even think of pulling the trigger.

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
3/13/2024SPYBear CallMay 17, 2024, 535/540$1.33 $0.98 80.36%-0.06
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%
12/1/20231/10/2024SPYBear Call SpreadJanuary 19, 2024 475/480$0.75 $2.75 -40.00%
1/23/20242/21/2024QQQBear Call SpreadMarch 1, 2024 445/450 $0.60 $0.20 8.70%
1/16/20243/15/2024SPYIron CondorMarch 15, 2024 510/505 - 440/435 $0.66 $3.11 -49.00%

Volatility Matrix

IV Ranks remain low across our watch list with few exceptions. BITO still offers an incredibly high IV and could be an interesting play. SMH is the other highly liquid ETF that offers a very high IV Rank.

When looking at the other ETFs, my preference would be to use a strategy that takes advantage of cheap premium and potential volatility expansion … a bear put spread or bull call spread comes to mind, with the former being the preference. These are debit spread strategies that I might employ as a mix to our predominantly premium selling strategies and to play a potential volatility expansion as we move ever closer to the November elections.

qt.png

Volatility Talk

After another brief stint above 15, the VIX closed the week at 14.41. The song continues to remain the same. The VIX remains complacent and will be so until we see a sustained push to the 18-20 level and even then we are just entering “normal” levels of volatility. Remember, with an election in the not-so-distant future and in the midst of seasonal weakness, I do expect volatility to see a climb towards normal levels (18-20). As I’ve stated for weeks, it’s my plan to add a volatility-based trade to take advantage of any volatility expansion over the course of the next eight to 10 months.

COI_QT_031824_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 March 18, 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 ETFARKK40.932.135.6
ProShares Bitcoin ETFBITO88.584.458.4
SPDR Dow JonesDIA13.221.639.6
iShares MSCI Emerging MarketsEEM18.018.151.5
iShares MSCI EAFEEFA12.28.658.7
iShares MSCI Mexico ETFEWW20.226.462.7
iShares MSCI BrazilEWZ22.825.834.3
iShares China Large-CapFXI31.543.153.1
VanEck Gold MinersGDX36.648.966.6
SPDR Gold GLD13.546.364.4
iShares High-YieldHYG6.09.736.7
iShares Russell 2000IWM21.635.142.2
SPDR Regional BankKRE31.728.438.4
VanEck Oil ServicesOIH26.54.184
Invesco Nasdaq 100QQQ19.833.840.7
iShares Silver TrustSLV26.934.878.4
VanEck SemiconductorSMH39.0105.646.7
SPDR S&P 500 SPY 14.420.346.5
iShares 20+ Treasury BondTLT14.48.329.4
United States Oil FundUSO28.619.272
ProShares Ultra VIX ShortUVXY108.732.355.1
CBOE Market Volatility IndexVIX92.266.953.6
Barclays S&P 500 VIX ETNVXX74.337.255.6
SPDR BiotechXLB18.223.673.7
SPDR Energy Select XLE18.5-0.486.9
SPDR FinancialsXLF16.11161.1
SPDR UtilitiesXLU18.22357.6
SPDR S&P Oil & Gas ExplorerXOP23.31.387.3
SPDR Retail XRT22.33253

Stock Watch List – Trade Ideas

Stock - Quant TraderTicker Symbol IVIV Rank HPMR Oversold - Overbought
AppleAAPL23.035.041.2
Bank of AmericaBAC25.514.553.5
Bristol-Myers SquibbBMY25.759.848.1
CitigroupC30.326.764.6
CaterpillarCAT27.129.876
ComcastCMCSA27.835.451.7
CostcoCOST19.118.540.7
Cisco SystemsCSCO19.921.440.5
ChevronCVX19.711.571.1
DisneyDIS25.324.058.2
Duke EnergyDUK16.78.957
Gilead SciencesGILD25.024.645.3
General MotorsGM28.76.061.1
IntelINTC38.531.340.4
Johnson & JohnsonJNJ17.140.237.3
JPMorganJPM24.133.564.1
Coca-ColaKO14.217.444.4
Altria GroupMO20.433.676
MerckMRK25.168.431
Morgan StanleyMS25.623.657.2
MicrosoftMSFT23.021.956.1
NextEra EnergyNEE27.836.979
NvidiaNVDA64.287.656.4
PfizerPFE26.748.958.4
PayPalPYPL35.624.174.6
StarbucksSBUX23.528.930
AT&TT24.123.247.9
VerizonVZ22.33235
Walgreens Boots AllianceWBA52.280.941.7
Wells FargoWFC29.824.975
WalmartWMT16.936.460.1
Exxon MobilXOM20.62.979

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Bear Call: SPY May 17, 2024, 535/540

Original trade published on 3-13-2024 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 516.14. We sold the May 17, 2024, SPY 535/540 bear call for $1.33. The expected range or move was 495 to 537. The probability of success at the time of the trade was 72.31%.

Current Thoughts: The SPY now sits at 511.43, roughly $5 lower than when we placed the trade. With 61 days left until the end of the May 17 expiration, SPY sits well below our short call strike of 535. Our probability of success now stands at 80.27% and our bear call spread is currently worth $0.98. We could lock in a small profit here of 7.5%, but I intend to lock in a return when our spread is only worth $0.65 to $0.35.

Call Side:

COI_QT_031824_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 March 25, 2024.


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