COI Quant Trader Issue: March 11, 2024

Weekly Commentary

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The S&P 500 (SPY) is up 8.3% YTD and 25.1% since its near-term low back on October 27, 2023. It can’t be argued that we are witnessing something well outside of normal distribution.

If we go back to October 27 and take a quick look at the probability of the current move, we can clearly see that the probability at the time for SPY climbing above 510 (SPY currently sits at 511.72) was 0.93%. That’s right – 0.93%! So yes, again, this is definitely a move well outside of the norm.

And it’s the reason I will be looking at the volatility matrix (see below) to help me focus on opportunities for the week ahead.

I continue to take the stance, based on numerous statistics, that while we could certainly see a short-term continuation of the current rally, the probability of a move to the downside is high. It will be interesting to see how the market reacts at these levels as we head into triple witching (expiration of stock index futures, stock index options, single stock options) on March 15.

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

Current Portfolio

Volatility Talk

I’ve decided to add a matrix of the various IV ranks and levels of implied volatility for all of the ETFs that currently reside on our weekly watch list. This gives us a good picture for the ETFs that we need to focus on each week.

*I’ll be discussing the volatility matrix, and its importance, in our upcoming webinar on Thursday. Please come with any questions. If you can’t make the webinar, no worries, send me your questions and I’ll gladly cover all of them in the webinar.

After a brief stint above 15, the VIX closed the week at 14.74. There is no doubt that the VIX remains complacent and will be so until we see a sustained push to the 18-20 level and even then we are just entering “normal” levels of volatility. Remember, with an election in the not-so-distant future and in the midst of seasonal weakness, I do expect volatility to see a climb towards normal levels (18-20). As I’ve stated for weeks, it’s my plan to add a volatility-based trade to take advantage of any volatility expansion over the course of the next eight to 10 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 March 11, 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 511.43, just $1 lower at this time last week. With just 5 days left until the end of the March 15 expiration, SPY sits above our short call strike of 505. As I stated last week, if we expect to take a profit off the table a near-term decline needs to occur. We still have a probability of touch of 58.15%, but we will need to see a significant push lower over the next few days, otherwise we will need to close our position and move on to the next opportunity.

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 18, 2024.

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