COI Quant Trader Issue: March 4, 2024

Weekly Commentary

The S&P 500 is roughly 24% higher without a 2% decline. So, the air is starting to get thin at these price levels. In addition, the rally, without a 2% pullback, has lasted for 88 days. This puts the current bullish streak in the top 25 all-time and top 3 in terms of returns since 1928. The largest move without a 2% decline came in 1994, when the S&P rallied 26.3%.

It can’t be argued that we are witnessing something well outside of normal distribution.

While we could certainly see a continuation of this current rally, the probability of a move to the downside, given the plethora of current short-term indicators, is high. One thing is certain: 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

Volatility continues to sit at low levels and as a result, complacency amongst the investment crowd remains at the forefront. Just remember, with an election in the not-so-distant future and seasonal weakness at the doorstep, I expect volatility to see a climb towards normal levels (18-20). It’s my plan to add a volatility-based trade over the next week or two to take advantage of any volatility expansion over the course of the next six to eight 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 4, 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 512.85. With just 12 days left until the March 15 expiration, SPY sits above our short call strike of 505. 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 and SPY is trading around 511.96… certainly a move in the right direction, but still well above our short strike of 505. We still have a probability of touch of 57.98%, 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 11, 2024.

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