Weekly Commentary
We have one open position with the intent of adding several more this week. I’ll be using our standard, highly liquid ETFs for one of the trades and a stock-based position as well. We haven’t dipped into equities much, but I expect to add a few of the most highly liquid stocks to our list of regulars.
As always, I want to keep our deltas balanced. At the moment we are leaning to the short side with our bear call in SPY being tested. As a result, we need to add some bullish exposure to even out the deltas … and possibly a skewed (bullish) iron condor. Of course, at extreme overbought levels it’s hard to justify adding too much bullish exposure, so a reprieve of the current overbought state would be ideal. If we continue to see a rally, we will most likely be exiting our bear call spread which will immediately flatten out our deltas again. At that point, we can start with a fresh new set of positions with a duration of 45 to 60 days.
As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.
Current Portfolio
Open Date | Ticker | Strategy | Trade | Open Price | Current Price | Current Probability | Delta |
11/6/2023 | SPY | Bear Call | December 15, 2023 456/461 | $0.58 | $2.31 | 49.72% | -0.18 |
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% |
6/30/2023 | 8/7/2023 | SPY | Bear Call Spread | August 18, 2023 462/466 | $0.52 | $0.23 | 7.82% |
8/4/2023 | 8/11/2023 | SPY | Bear Call Spread | September 15, 2023 470/475 | $0.65 | $0.20 | 9.90% |
8/17/2023 | 9/13/2023 | SPY | Iron Condor | October 20, 2023 475/470 - 390/385 | $0.72 | $0.25 | 10.38% |
9/6/2023 | 10/11/2023 | IWM | Iron Condor | October 20, 2023 204/199 - 169/164 | $0.62 | $0.19 | 9.41% |
* 9/29/2023 | 10/27/2023 | SPY | Bear Call Spread | November 17, 2023 452/457 | $0.74 | $0.03 | 16.60% |
*10/6/2023 | 11/3/2023 | SPY | Bull Put Spread | November 17, 2023 408/403 | $0.58 | $0.03 | 12.36% |
* 10/27/2023 | 11/3/2023 | SPY | Bear Call Spread | November 17, 2023 430/435 | $0.58 | $3.50 | -33.20% |
10/31/2023 | 11/14/2023 | SPY | Iron Condor | December 15, 2023 450/445 - 380/375 | $0.77 | $3.00 | -44.60% |
Volatility Talk
The VIX continued to plummet last week closing at a multi-year low of 12.46. The new low displays the ongoing complacency in the market that has been prevalent since April. Even the recent three month sell-off (August to October) couldn’t push the VIX into “fear” territory. The question is, with all of the major indices in short-term overbought territory and an incredibly oversold VIX, will we see some “normalcy” return to the market? The recent rally has been sharp and fast with the S&P seeing gains of nearly 10% since the beginning of November, so a pullback is almost expected at this point.
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 27, 2023.
Here are the various levels I use to determine if an ETF is in an oversold or overbought state.
Very Overbought | a reading greater than or equal to 80.0 |
Overbought | greater than or equal to 60.0 |
Neutral | between 40 to 60 |
Oversold | less than or equal 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 | 36.5 | 12.5 | 73.9 |
Proshares Bitcoin ETF | BITO | 61.5 | 46.5 | 56 |
SPDR Dow Jones | DIA | 11.2 | 5 | 76.7 |
iShares MSCI Emerging Markets | EEM | 18.5 | 23.6 | 68 |
iShares MSCI EAFE | EFA | 12.8 | 9.7 | 83.4 |
iShares MSCI Mexico ETF | EWW | 21.2 | 21.4 | 78.2 |
iShares MSCI Brazil | EWZ | 33.5 | 18.5 | 75.9 |
iShares China Large-Cap | FXI | 28.8 | 5.3 | 48.7 |
Vaneck Gold Miners | GDX | 32.7 | 29.6 | 53.7 |
SPDR Gold | GLD | 12.7 | 15.5 | 60.5 |
iShares High-Yield | HYG | 7.0 | 14.1 | 70.8 |
iShares Russell 2000 | IWM | 19.8 | 16.8 | 67.2 |
SPDR Regional Bank | KRE | 30.0 | 17.3 | 72.5 |
Vaneck Oil Services | OIH | 30.2 | 12.8 | 42.1 |
Invesco Nasdaq 100 | QQQ | 16.5 | 2.2 | 80.4 |
iShares Silver Trust | SLV | 25.9 | 17.9 | 72.1 |
Vaneck Semiconductor | SMH | 23.4 | 11.7 | 86.5 |
SPDR S&P 500 | SPY | 12.8 | 4.4 | 81.7 |
iShares 20+ Treasury Bond | TLT | 17.3 | 24.4 | 64.9 |
United States Oil Fund | USO | 45.4 | 65.1 | 42 |
Proshares Ultra VIX Short | UVXY | 96.2 | 6.8 | 21.2 |
CBOE Market Volatility Index | VIX | 84.1 | 44.6 | 30.6 |
Barclays S&P 500 VIX ETN | VXX | 65.3 | 11 | 20.6 |
SPDR Biotech | XLB | 13.7 | 9.1 | 74.3 |
SPDR Energy Select | XLE | 22.3 | 12 | 50.5 |
SPDR Financials | XLF | 14.4 | 2 | 83.9 |
SPDR Utilities | XLU | 17.4 | 21.7 | 66.5 |
SPDR S&P Oil & Gas Explorer | XOP | 26.9 | 12.1 | 46.8 |
SPDR Retail | XRT | 24.4 | 21.3 | 63.3 |
Stock Watch List – Trade Ideas
Stock - Quant Trader | Ticker Symbol | IV | IV Rank | HPMR Oversold - Overbought |
Apple | AAPL | 18.9 | 4.1 | 80.8 |
Bank of America | BAC | 24.3 | 7.6 | 80.4 |
Bristol-Myers Squibb | BMY | 21.3 | 46.5 | 39.9 |
Citigroup | C | 24.2 | 2.2 | 83.4 |
Caterpillar | CAT | 21.8 | 2.7 | 67.7 |
Comcast | CMCSA | 23.8 | 8.0 | 55.6 |
Costco | COST | 19.6 | 17.6 | 53.2 |
Cisco Systems | CSCO | 15.2 | 3.0 | 19.2 |
Chevron | CVX | 20.9 | 13.9 | 44.6 |
Disney | DIS | 21.5 | 4.0 | 78.6 |
Duke Energy | DUK | 18.5 | 23.0 | 59.6 |
Fedex | FDX | 31.7 | 25.2 | 68.2 |
Gilead Sciences | GILD | 20.2 | 8.1 | 40.4 |
General Motors | GM | 35.4 | 35.3 | 50.8 |
Intel | INTC | 31.3 | 0.7 | 85.3 |
Johnson & Johnson | JNJ | 16.5 | 26.8 | 53.6 |
JP Morgan | JPM | 16.3 | 2.1 | 84.9 |
Coca-Cola | KO | 12.6 | 10.4 | 67.3 |
Altria Group | MO | 18.4 | 18.8 | 58.5 |
Merck | MRK | 18.6 | 6.2 | 41.5 |
Morgan Stanley | MS | 20.9 | 3.1 | 77 |
Microsoft | MSFT | 21.2 | 1.7 | 64.7 |
Nextera Energy | NEE | 26.3 | 33.3 | 54.9 |
Nvidia | NVDA | 36.2 | 6.5 | 74.1 |
Pfizer | PFE | 27.6 | 50.0 | 45.7 |
Paypal | PYPL | 29.8 | 6.2 | 58.1 |
Starbucks | SBUX | 16.3 | 1.6 | 64.9 |
AT&T | T | 17.2 | 0 | 68.2 |
Verizon | VZ | 16.2 | 0 | 73.6 |
Walgreens Boots Alliance | WBA | 38.4 | 76.9 | 51.3 |
Wells Fargo | WFC | 23 | 0 | 72.5 |
Walmart | WMT | 14.7 | 15.1 | 25.6 |
Exxon Mobil | XOM | 22.5 | 13.6 | 50.8 |
Weekly Trade Discussion: Open Positions
*Portfolio updated every Monday
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: SPY now sits at 455.30. SPY’s relentless push higher since late October has pushed our probability of success from 86.49% to where it stands now, 49.76%. If we manage to see any decent downside from here, we should be able to get out of our position. Our bear call spread currently sits at $2.30.
SPY is currently in a short-term overbought extreme state, but it’s been sitting there for quite some time. I continue to expect a pullback to close at least one of the recent gaps, but the problem, at least for this position, is that we could see a continuation of this rally before a reprieve occurs. Regardless of my thoughts on the market, unless we see an immediate pullback, we will be forced to exit our position, take a loss and move 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 December 4, 2023.