COI Quant Trader Issue: February 26, 2024

Weekly Commentary

We finally locked in a profit last week in our QQQ bear call spread … and it looked like a similar fate was not far off for our SPY iron condor. That is until NVDA reported earnings and the market rocketed higher shortly after the announcement. The push higher in the S&P 500 led to SPY piercing our short call strike of 505. The spread is now worth $2.87. Given the near-term overbought readings and numerous short-term bearish indicators flashing red, I will continue to hold the position, but plan to exit if our spread hits $3.16.

I’ll be adding several more positions to the mix this week. Stay tuned!

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

Current Portfolio

Volatility Talk

After the VIX pushed through 15 and actually held (for one day), some market participants, including myself, thought we might have a chance at moving back to normal levels, around 20. However, NVDA’s earnings announcement squashed that idea, at least for the time being. Until we see the VIX push above 15 and work its way to the 20 level, trading opportunities, particularly in the major market indices (SPY), will be more challenging. Until then, we will need to look elsewhere for the “normal” levels of implied volatility we prefer.

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 26, 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 507.85. With just 18 days left until the March 15 expiration, SPY sits above our short call strike of 505. There is no doubt our position is in a precarious position as any follow-through to last week’s bullishness will certainly lead to taking a loss. If we expect to take a profit off the table a near-term decline needs to occur. As I write this, S&P futures are down 12.25 and SPY is trading around 506.89 after hours … certainly a move in the right direction.

Call Side:

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 March 4, 2024.

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