Weekly Commentary
We took our first loss since early July and, admittedly, I thought we were in for a nice return. The five-day, snapback rally of 6%+ last week caught everyone off-guard. Yes, we all knew we were in short-term oversold territory, so a push higher was anticipated, but certainly not on the magnitude of 6%+.
At the time of the trade, with 21 days left until expiration, our probability of success on the trade was 86.76%.
But look at the probabilities going out just 7 days. There was only a 4.57% chance of SPY touching 430 and less than a 3% chance (100% – 97.68%) that SPY would actually finish above that level at the close last Friday. SPY closed at 434.69. And even if SPY had pushed as much as 3% higher, we would still be on the dance floor as time decay would have really helped us out with the VIX falling below 15 at the close on Friday.
It’s just another reminder to keep risk management at the forefront of all your trading/investment endeavors … starting with a consistent and disciplined approach to position size.
I plan on adding one, if not two, positions early this week to take advantage of the two upside gaps in SPY which have resulted in the short-term extreme overbought readings over various time frames in numerous ETFs and stocks.
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 |
10/31/2023 | SPY | Iron Condor | December 15, 2023 450/445 - 380/375 | $0.77 | $1.69 | 67.43% - 95.40% | -0.09 |
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 | |
*10/6/2023 | 11/3/2023 | SPY | Bull Put Spread | November 17, 2023 408/403 | $0.58 | ||
* 10/27/2023 | 11/3/2023 | SPY | Bear Call Spread | November 17, 2023 430/435 | $0.58 | $3.50 | -33.20% |
Volatility Talk
Volatility took a tumble last week closing the week out just below 15, at 14.91. Now the “fear gauge” is in short-term oversold territory. Of course, I wouldn’t be surprised to see the VIX test the lows established in October before a “reversion to the mean” event occurs. Given all the geopolitical turmoil, etc., I wouldn’t think sitting at current levels (or lower) will last … just a worthless hunch.
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 6, 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 | 38.9 | 21.3 | 75.3 |
Proshares Bitcoin ETF | BITO | 71.0 | 32.9 | 68.8 |
SPDR Dow Jones | DIA | 12.7 | 17.8 | 71 |
iShares MSCI Emerging Markets | EEM | 17.0 | 17.1 | 73.5 |
iShares MSCI EAFE | EFA | 15.0 | 22.3 | 75.4 |
iShares MSCI Mexico ETF | EWW | 22.6 | 28.1 | 83.9 |
iShares MSCI Brazil | EWZ | 31.2 | 9 | 73.6 |
iShares China Large-Cap | FXI | 30.0 | 16.8 | 62.4 |
Vaneck Gold Miners | GDX | 33.8 | 31.9 | 63.9 |
SPDR Gold | GLD | 13.7 | 27.2 | 67 |
iShares High-Yield | HYG | 8.5 | 26.3 | 83.4 |
iShares Russell 2000 | IWM | 21.7 | 32.1 | 72.6 |
SPDR Regional Bank | KRE | 31.0 | 12.2 | 77.9 |
Vaneck Oil Services | OIH | 30.9 | 17 | 55.2 |
Invesco Nasdaq 100 | QQQ | 19.0 | 10.8 | 69.2 |
iShares Silver Trust | SLV | 27.4 | 29.9 | 60.2 |
Vaneck Semiconductor | SMH | 27.5 | 18.7 | 71.8 |
SPDR S&P 500 | SPY | 15.1 | 19.1 | 70.4 |
iShares 20+ Treasury Bond | TLT | 20.9 | 54.6 | 67.1 |
United States Oil Fund | USO | 38.0 | 48.9 | 38.2 |
Proshares Ultra VIX Short | UVXY | 97.8 | 15 | 28.7 |
CBOE Market Volatility Index | VIX | 82.1 | 45 | 26.7 |
Barclays S&P 500 VIX ETN | VXX | 66.7 | 15.8 | 28.9 |
SPDR Biotech | XLB | 15.9 | 17.2 | 73 |
SPDR Energy Select | XLE | 22.7 | 15.4 | 47 |
SPDR Financials | XLF | 16.4 | 9 | 72.9 |
SPDR Utilities | XLU | 18.9 | 33.8 | 73.9 |
SPDR S&P Oil & Gas Explorer | XOP | 28.4 | 15.3 | 55 |
SPDR Retail | XRT | 23.7 | 24.1 | 76.8 |
Stock Watch List – Trade Ideas
IV | IV Rank | HPMR Oversold - Overbought |
22.0 | 9.6 | 62.9 |
28.2 | 19.3 | 75.2 |
19.6 | 22.5 | 43.5 |
25.8 | 8.6 | 75 |
24.9 | 19.5 | 44.4 |
22.6 | 9.7 | 60.4 |
17.6 | 12.8 | 59 |
25.4 | 44.7 | 58.7 |
22.5 | 21.8 | 34.6 |
35.9 | 40.9 | 68.8 |
20.8 | 36.6 | 66.4 |
23.9 | 10.6 | 61.8 |
32.0 | 57.3 | 74.8 |
34.7 | 34.7 | 61.2 |
29.7 | -5.4 | 72.6 |
17.8 | 36.5 | 53.9 |
19.9 | 9.2 | 59.4 |
17.2 | 32.3 | 65.6 |
19.4 | 27.8 | 44.7 |
18.5 | 12.0 | 52.3 |
23.6 | 12.7 | 68.1 |
21.2 | 6.0 | 76.4 |
25.0 | 30.5 | 69.4 |
28.4 | 50.6 | 67.3 |
27.3 | 53.8 | 54.6 |
33.4 | 16.5 | 66.4 |
19.5 | 4.8 | 81.1 |
20.6 | 7 | 69.4 |
19.2 | 8.5 | 75.9 |
35.5 | 44.9 | 59.8 |
26 | 7.8 | 69.8 |
21.6 | 40.1 | 64.1 |
23.3 | 17.5 | 47.6 |
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 434.69. Admittedly, we are early in the trade, but our probability only sits at 67.77% on the call side, but a comfortable 95.38% on the put side. We will need to keep a close eye on the call side of the trade just in case SPY continues to rally.
Call Side:
Put 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 November 13, 2023.