COI Quant Trader Issue: November 13, 2023

Weekly Commentary

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We currently have two positions due to expire in December. My hope is to add at least one more December expiring position this week as our deltas are leaning far too negative for my liking, at least at the moment.

Expect to see a new trade or two as we progress throughout the week. And if the market continues to rally we will need to adjust a position or two, which I discuss in further detail in the open positions section below.

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

Current Portfolio

Volatility Talk

The investor’s fear gauge, otherwise known as the VIX, pushed further into short-term oversold territory this past week. My sentiment remains the same as last week: I wouldn’t be surprised to see the VIX test the lows established in October before a reversion to the mean event occurs. And given all the geopolitical turmoil, etc., I wouldn’t think sitting at current levels (or lower) will last.

With the VIX at 14.17 we’ve now hit the high side of the range of established lows set back during the late-June to September period. It will be interesting to see if volatility trades around this area into the new year or simply mean reverts over the next few trading sessions. As it stands, our current positions would love for the latter to occur sooner than later.

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 November 13, 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
Iron Condor: SPY December 15, 2023, 450/445 – 380/375

Original trade published on 10-31-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 418. We sold the December 15, 2023, SPY 450/445 – 380/375 iron condor for $0.77. The expected range or move was 398 to 438. The probability of success at the time of the trade was 89.45% on the call side and 88.67% on the put side.

Current Thoughts: At the time of the trade SPY was trading for 418 and now it sits at 440.61, a 5.4% move in just two weeks. We have 33 days left in the trade and the short call strike of our iron condor is uncomfortably close as it sits with a 58.37% probability of success. If we continue to see even the slightest of moves higher, I will most likely adjust the position to give us a little more room for error. And if we pull back, there is a good chance that I still adjust the position to give us a higher probability of success on the trade going forward. Our iron condor is currently worth $2.21.

Call Side:

Put Side:

Bear Call Spread: SPY December 15, 2023, 456/461

Original trade published on 11-6-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 435.36. We sold the December 15, 2023, SPY 456/461 bear call spread for $0.58. The expected range or move was 419 to 451. The probability of success at the time of the trade was 86.49% on the call side.

Current Thoughts: At the time of the trade SPY was trading for 435.36 and now it sits at 440.61. Admittedly, we are early in the trade, but our probability sits at a mostly comfortable 82.36%. Of course, as we all know that can change quickly, especially if SPY continues to trend higher.

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 November 20, 2023.