COI Quant Trader Issue: March 25, 2024

Weekly Commentary

The goal is simple this week. We have two open bear call spread positions at the moment which means our portfolio currently leans to the short side of things. This week, if the market cooperates, I plan to add some long exposure through a debit spread, or a bull put spread, to even out our deltas so our portfolio takes a more neutral stance. There is no doubt that the air is getting thin at these levels. But, as we have seen recently, just when you think the market might take a turn, the bulls make an appearance.

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

Current Portfolio

Volatility Matrix

Nothing has changed since last week. 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, EWW, GDX and even IWM are the other highly liquid ETFs that offer decent IV Ranks. My preference is to see IV Ranks above 30 when using options selling strategies.

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.

Volatility Talk

The VIX continues to be mired below the 15 handle and until we see a sustained move above 15, we should expect to see a challenging environment for selling premium in the major index ETFs. As it stands, it’s smooth sailing for the bulls as complacency, as seen through the low levels of the VIX, continues to reign supreme.

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 25, 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

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 521.21, roughly $5 higher than when we placed the trade. With 54 days left until the end of the May 17 expiration, SPY remains below our short call strike of 535. Our probability of success now stands at 68.50% and our bear call spread is currently worth $1.60.

Call Side:

Bear Call: QQQ April 26, 2024, 460/465

Original trade published on 3-19-2024 (click to see original alert)

Background: At the time of the trade, QQQ was trading for roughly 436.50. We sold the April 26, 2024, QQQ 460/465 bear call for $0.91. The expected range or move was 420 to 458. The probability of success at the time of the trade was 80.16%.

Current Thoughts: The QQQs now sit at 446.38, roughly $10 higher than when we placed the trade. With 33 days left until the end of the April 26 expiration, QQQ still sits well below our short call strike of 460. Our probability of success now stands at 72.08% and our bear call spread is currently worth $1.30.

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 April 1, 2024.

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