COI Quant Trader Issue: October 30, 2023

Weekly Commentary

Last week, with the market pushing notably lower, we decided to take off our SPY 452/457 bear call spread for nearly a max profit. Our return on the trade: 16.6%. Our total return now stands at 182.4%.

There was little to no value left in the SPY 452/457 bear call spread, so we thought it was best to take our profits off the table and establish another bear call spread to protect our 408/403 bull put spread. One thing is certain: We will have to be nimble as we approach the November 17, 2023, expiration cycle. With only 18 days left until expiration, time decay is working in our favor. A short-term move to the upside, off oversold levels, should allow us to take our bull put spread off for a small profit. A rally should also “hopefully” lower implied volatility in SPY which should help our newly added bear call spread as well. As always, price action will be the final determinate.

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

Current Portfolio

Volatility Talk

Volatility continues to remain just above “normal” levels, but the investor’s fear gauge, otherwise known as the VIX, certainly isn’t screaming fear in the market. Does that mean the recent sell-off is just another “normal” correction? Now that we are back into oversold territory almost across the board, at key support levels with positive seasonality blowing at our backs, is another leg up in the cards? One thing is certain: The VIX isn’t overly concerned, at least not at these levels. It will be interesting to see how the market reacts over the coming week or so and should be telling as to how we wrap up the rest of 2023.

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 30, 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
Bear Call: SPY November 17, 2023, 430/435

Original trade published on 10-27-2023 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 410.78. We sold the November 17, 2023, SPY 430/435 bear call spread for $0.58. The expected range or move was 396 to 426. The probability of success at the time of the trade was 86.76% and the probability of touch was 26.03%.

Current Thoughts: At the time of the trade, SPY was trading for 410.78 and now it sits at 410.68. Admittedly, we are early in the trade, but our probability sits at a comfortable 86.88% on the call side. This trade was added to protect any additional downside over the next week or so.

Call Side:

Bull Put: SPY November 17, 2023, 408/403

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 410.68. Our probability sits at 58.22% on the put side. The current price of our bull put spread is $1.56 which is reasonably close to our stop-loss of $1.74. Obviously, a move to the upside will help to push the position back into positive territory, but given how close we are to our stop-loss we need to stay nimble just in case the current downside trend continues.

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 6, 2023.