COI Quant Trader Issue: February 20, 2024

Weekly Commentary

Nvidia (NVDA) is due to announce this week and has the chance to significantly move the market over the short-term. We have two positions that are both bearish-leaning at the moment, so a short-term move to the downside would be welcome. However, if that doesn’t occur, no worries, as long as we the market doesn’t rally significantly higher. If it does, we will need to adjust or close out our SPY iron condor. Shortly after the NVDA announcement I intend to add several new positions to the mix.

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

Current Portfolio

Volatility Talk

The VIX picked up a bit last week and even pierced through the 15 level for the first time in months. And while the volatility index couldn’t manage to hold the 15 level at week’s end, the push higher could be a telltale sign of things to come over the next few months. As always, time will tell.

As I’ve stated over the past few weeks and will state again, I do think implied volatility will increase going forward. In fact, we could be seeing some of the lowest levels of volatility for 2024. Since 1992, there have only been four years where the VIX has not pushed above 20. The long-term average, according to the CBOE, is 20. As I’ve written in the past few issues, I’m still looking at a variety of different volatility plays to take advantage of a potential pop in implied volatility over the next three to six months.

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 February 20, 2024.

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: SPY March 15, 2024, 510/505 – 440/435

Original trade published on 1-16-2024 (click to see original alert)

Background: At the time of the trade, SPY was trading for roughly 474. We sold the March 15, 2024, SPY 510/505 – 440/435 iron condor for $0.66. The expected range or move was 455 to 494. The probability of success at the time of the trade was 91.07% on the call side and 86.77% on the put side.

Current Thoughts: The SPY now sits at 499.51. With just under a month left until the March 15 expiration, SPY remains uncomfortably close to our short call strike of 505.

This week will be the telltale sign as to whether we need to adjust our position or not. NVDA is due to announce earnings after the close Wednesday and the price action could be wild.

If an adjustment needs to occur, I will most likely buy back the put side of my iron condor and sell another bull put spread at higher strikes to bring in more premium and lower the risk on the trade. That being said, with so much time left until expiration, we have the benefit of taking several different avenues with the aforementioned adjustment being our preference.

Call Side:

Put Side:

Bear Call: QQQ March 1, 2024, 445/450

Original trade published on 1-23-2024 (click to see original alert)

Background: At the time of the trade, QQQ was trading for roughly 422.16. We sold the March 1, 2024, QQQ 445/450 iron condor for $0.60. The expected range or move was 405 to 440. The probability of success at the time of the trade was 85.41% on the call side.

Current Thoughts: QQQ now sits slightly higher at 430.57, roughly 3.4% below our short call strike of 445. Our probability sits at 86.77% on the call side. There are 11 days left until our position is due to expire. If we see a move to the downside early this week, we should be able to take off our trade for a nice return.

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 February 26, 2024.

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