COI Quant Trader Issue: October 23, 2023

Weekly Commentary

As October expiration moves into our rearview mirror, our total returns sit at an all-time high of 165.8%. For the expiration cycle we were able to lock in two iron condors (SPY and IWM) for a total return of 19.8%.

We currently have two November positions, a bear call and bull put spread, essentially legging-in to an iron condor. In total, we brought in $1.32 through legging-in to the SPY iron condor. Now the iron condor trades for just below that level for $1.10. We could lock in a small profit, but with 26 days left in the trade and time decay accelerating a move to the upside should allow us to take off the trade for some nice profits. Thankfully, with an 70% probability of success on the downside portion of the trade (bull put) we have a little wiggle room to wait and see if an upside move comes to fruition.

But I’m not done in November. I’m hoping to add at least one more November trade to the mix by the middle of this week, if Mr. Market cooperates. I also want to add a few December iron condors to the mix. With just over 50 days left until December expiration and implied volatility at near-term highs, it’s time to sell one, if not two iron condors this week.

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

Current Portfolio

Volatility Talk

Volatility is back! The VIX finally closed above 20, IV ranks have finally pushed higher, and options premiums have increased across the board. Now it’s time to take advantage.

Some choose to use the pop in implied volatility to sell higher premiums. I choose to keep my premiums at consistent, baseline levels and use the inflated implied volatility to boost the probabilities of success on my trades. For example, an iron condor with an 85% probability of success that typically sells for $0.75, well, now one can sell an iron condor for the same price, but with a much higher probability of success, say slightly over 90%.

I plan on taking advantage of the inflated premium early this week by selling one, if not two, iron condors. I’ll be more than happy to see the VIX float around the 20 level for a while. If so, we should have plenty of opportunities ahead.

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 October 23, 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
Original trade published on 9-29-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 428. We sold the November 17, 2023, SPY 452/457 bear call spread for $0.74. The expected range or move was 410 to 448. The probability of success at the time of the trade was 84.92% and the probability of touch was 28.93%.

Current Thoughts: At the time of the trade SPY was trading for 428.34 and now it sits at 421.19. Our probability sits at a comfortable 95.73% on the call side. A move to the downside has obviously helped to increase the probabilities on the trade while time decay continues to work its magic in the background, slowly eating away at the options premium of the trade. The spread is currently trading for $0.16.

Call Side:

Bull Put: SPY November 17, 2023, 452/457

Original trade published on 10-6-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for 429.69. We sold the November 17, 2023, SPY 408/403 bull put spread for $0.58. The expected range or move was 412 to 448. The probability of success at the time of the trade was 80.50% and the probability of touch was 39.82%.

Current Thoughts: At the time of the trade, SPY was trading for 429.69 and now it sits at 421.19. Our probability sits at 71.61% on the put side. The current price of our bull put spread is $0.94.

Additionally, by adding the bull put spread to the mix we essentially have an iron condor position on when combining our previous SPY bear call spread at the 452/457 call strikes. Our total combined premium in SPY for the November 17, 2023 expiration cycle stands at $1.32 for a potential return of roughly 35%. The iron condor now trades for $1.10.

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 October 30, 2023.