Cabot Options Institute Quant Trader – Alert (SPY)
SPDR S&P 500 (SPY)
SPY continues to rally and has now pushed through our short 415 call strike. As a result, I am going to take off the trade. I will be following up this trade with a few opening trades as we need to start looking towards March expiration for premium-selling opportunities.
The Trade
Simultaneously:
Buy to close SPY February 17, 2023, 415 call strike
Sell to close SPY February 17, 2023, 420 call strike for a total of $2.50 (As always, the price of the spread will vary, so please adjust accordingly.)
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.
Cabot Options Institute Quant Trader – Alert (IWM, SPY)
iShares Russell 2000 ETF (IWM)
With the Russell 2000 ETF (IWM) trading for 197.85, I want to place a short-term iron condor going out 43 days. As always, my intent is to take off the trade well before the March 17, 2023, expiration date.
IV: 22.6%
IV Rank: 1.4
Expected Move (Range): The expected move (range) for the March 17, 2023, expiration cycle is from 187 to 208.
Call Side:
Put Side:
The Trade
Simultaneously:
- Sell to Open IWM March 17, 2023, 215 call strike
- Buy to Open IWM March 17, 2023, 220 call strike
- Sell to Open IWM March 17, 2023, 180 put strike
- Buy to Open IWM March 17, 2023, 175 put strike … for a total of $0.72. (As always, the price of the spread can vary from the time of the alert, so please adjust accordingly if you wish to take on a position.)
*Our margin of error is roughly 8.7% to the upside and more than 9.0% to the downside over the next 43 days.
Delta of spread: -0.01
Probability of Profit: 90.84% (upside) – 85.43% (downside)
Probability of Touch: 18.11% (call side) – 29.03% (put side)
Total net credit: $0.72
Total risk per spread: $428
Max return: 16.8%
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 (I use 1% to 5% per trade, smaller accounts tend to use a higher percentage) 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 215/220 – 180/175 iron condor for roughly $0.72, if my iron condor reaches $1.44 to $2.16, 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.
SPDR S&P 500 (SPY)
With the SPY trading for 416.34, I want to place a short-term bear call spread going out 43 days and outside of the expected range to the upside, or 435. My intent is to take off the trade well before the March 17, 2023, expiration date.
IV: 21.0%
IV Rank: 1.3
Expected Move (Range): The expected move (range) for the March 17, 2023, expiration cycle is from 398 to 435.
Call Side:
The Trade
Simultaneously:
Sell to Open SPY March 17, 2023, 440 call strike
Buy to Open SPY March 17, 2023, 445 call strike for a total of $0.63 (As always, the price of the spread will vary, so please adjust accordingly.)
Delta of spread: -0.05
Probability of Profit: 86.11%
Probability of Touch: 27.22%
Total net credit: $0.63
Total risk per spread: $4.37
Max return: 14.4%
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 440/445 bear call spread for roughly $0.63, if my bear call spread reaches $1.26 to $1.89, 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.
