COI Quant Trader Issue: October 9, 2023

Weekly Commentary

We added a November 17, 2023, bull put spread in SPY last week, which gives us three positions. The addition of our bull put spread essentially forms another iron condor, although I will be managing the bear call spread and bull put spread in SPY separately.

We also have our IWM iron condor that is due to expire in just 11 days. There is no doubt this position has tested our patience, so I’ll be more than happy to lock in some potential gains if given the opportunity. With only 11 days left until expiration, time decay is rapidly accelerating as each day passes. If IWM can manage to push slightly higher, or simply trade at current levels over the next few trading days, we should have a chance to reach our goal of a 7% to 9% return.

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

Current Portfolio

Volatility Talk

The VIX continues to bounce between 17.5 and 20, with the 20 level acting as very strong overhead resistance. My hope is that volatility continues to trade around these levels so opportunities to sell premium are more abundant. After a rather slow summer, a return to normal levels of volatility, as seen by the VIX, is a welcome site. Let’s just hope we stay around these levels for a while.

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 9, 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: IWM October 20, 2023, 164/169 – 199/204 calls

Original trade published on 9-6-2023 (click to see original alert)

Background: At the time of the trade, IWM was trading for 185.75. We sold the October 20, 2023, IWM 164/169 – 199/204 iron condor for $0.62. The expected range or move was 177 to 194.

Current Thoughts: At the time of the trade IWM was trading for 185.75 and now it sits at 173. Our probabilities sit at a comfortable 99.83% on the call side and a far less comfortable 68.10% on the put side. Obviously, a move to the upside will help to increase the probabilities on the trade and allow our position to move further into profitable territory. I’m seeking gains of at least 7% to 9%, if not more. Our max profit on the trade is 14.2%. There is no doubt this position has tested our patience, so I’ll be more than happy to lock in some potential gains if given the opportunity. With only 11 days left until expiration, time decay is rapidly accelerating as each day passes. If IWM can manage to push higher over the next few trading days we should have a chance to reach our goal of a 7% to 9% return.

Call Side:

Put Side:

Bear Call: SPY November 17, 2023, 452/457

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 429.54. Our probability sits at a comfortable 85.90% on the call side. A move to the downside will help to increase the probabilities on the trade and allow our position to move into profitable territory. If I have an opportunity to buy back the spread early for roughly $0.35, I will do so and move on to the next opportunity.

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 429.54. Our probability sits at 79.00% on the put side. If I have an opportunity to buy back the spread early for roughly $0.25, I will do so and move on to the next opportunity.

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%.

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 October 16, 2023.