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Quant Trader
Expert-Level Options for Sophisticated Traders

December 1, 2022

Cabot Options Institute Quant Trader – Alert (SPY)

Okay, it’s time to ramp things back up again. I want to sell premium for the January expiration cycle and I’m going to start with a bear call spread and hopefully, over the next few trading days, add an iron condor and bull put spread in a few other of the major index ETFs.

We still have an open bear call spread for the December 16, 2022, expiration cycle. I’ll be watching this one closely over the coming days to see if we can take some profits off the table prior to the December 16 expiration. As it stands now, we are 13 points below our short strike of 420.

SPDR S&P 500 (SPY)

With the SPY trading for 406.89, I want to place a short-term bear call spread going out 50 days and outside of the expected range to the upside, or 430. My intent is to take off the trade well before the January 20, 2023 expiration date.

IV: 22.09%

IV Rank: 17.1

Expected Move (Range): The expected move (range) for the January 20, 2023, expiration cycle is from 384 to 430.

The Trade

Simultaneously:

Sell to Open SPY January 20, 2023, 435 call strike

Buy to Open SPY January 20, 2023, 440 call strike for a total of $0.67 (As always, the price of the spread will vary, so please adjust accordingly.)

Delta of spread: 0.04

Probability of Profit: 85.98%

Probability of Touch: 27.79%

Total net credit: $0.67

Total risk per spread: $4.33

Max return: 15.5%

Risk Management

Since we know how much we stand to make and lose prior to order entry, we can precisely define our position size on every trade we place. Position size is the most important factor when managing risk, so keeping each trade at a reasonable level allows not only the Law of Large Numbers to work in your favor … it also allows you to sleep well at night.

I tend to set a stop-loss that sits 1 to 2 times my original credit. Since I’m selling the 435/440 bear call spread for roughly $0.67, if my bear call spread reaches $1.34 to $2.31 I will exit the trade. As always, I will keep you updated on the status of the position as it progresses and send any necessary updates as needed.

Andy Crowder is a professional options trader, researcher and Chief Analyst of Cabot Options Institute. Formerly with Oppenheimer & Co. in New York, Andy has leveraged his investment experience to develop his statistically based options trading strategy which applies probability theory to option valuations in order to execute risk-controlled trades. This proprietary strategy has been refined through two decades of research and real-world experience and has been featured in the Wall Street Journal, Seeking Alpha, and numerous other financial publications. Andy has helped thousands of option traders learn and implement his meticulous rules-driven options trading strategies through highly attended conferences, one-on-one coaching, webinars, and his work as a financial columnist. He currently resides in Bolton Valley, Vermont and when he’s not trading, teaching and writing about options, he enjoys spending time with his wife and two daughters, backcountry skiing, biking, running and enjoying all things outdoors.