To trudge:
the slow, weary, depressing yet determined walk of a man
who has nothing left in life except the impulse to
simply soldier on.

– Geoffrey Chaucer (Movie: A Knight’s Tale)

Prologue

Standing by itself, the quote above sound defeatist and pessimistic. But from within the context of the Knight’s Tale movie, it is the start of a trek to improve ones’ lot in life, to make the noble effort, to stand out, to “change one’s stars.”

“Trade Trudging” is what I must do to be discipline, targeted, and educated so to better myself. Trade Trudging is what I must do to be – a champion.

Trade Trudging is also what I do when I really have nothing notable to document. With the lack of a pithy insight or just being distracted by other events, I will consider it Trade Trudging as my excuse to “simply soldier on.”

This week’s focus is to review and augment my trading schedule below, in preparation for the start of the new year. My plan has to be fluid and flexible as I turn this corner from “trial and error” to “income generation.”

I’m considering a new entry-rule in my schedule below:

As a general observation, when the market moves into correction territory, it can easily plunge 1,000 or more points very quickly, and a lot more over the short time that follows. It can then take its own sweet time to recover. This unfortunate event can spin several weeks of Put trades into total-kill.

Likewise, when there is high market enthusiasm, the sugar-high Marketeers can quickly send the market euphorically soaring. But from my observation, the soaring part takes a lot longer time to be harmful than the plunging part.

And as a final consideration for a new entry rule, I need to acknowledge that I do have other brokerage savings accounts, 401K, and IRAs at play. So holistically speaking, if the market plunges to sphincter-tightening despair, not only do I suffer the total-kill scenario for my Put Options trades, my other accounts will also be toast. But if the market skyrockets unexpectedly, I may whine about the total-kill for my Call Options trades, but I can take heart that I made good money on my other savings accounts – a consolation prize.

Therefore, I need to weight the higher percentage of my weekly dollar risk on Vertical Bull Call Credit Spreads.

So my new rule may look something like this:

• For any given week, consider executing one Vertical Bull Put Credit Spread and two Call Credit Spreads.
• For the Put Credit Spreads
  • consider a 6-week expiration, giving more time to gain distance from the short-strike or recover from a couple of days of a mini-correction.
  • reduce the maximum dollar risk per trade to near half of the current individual trade risk limit (current set to $500 max)
  • place short-strike close to but not less than 80% probability of OTM
• For the Call Credit Spreads
  • consider a 4-week expiration, shortening the time for run-ups
  • Maintain a higher dollar risk for each Call Spread
  • placed short-strike to close to but not greater than 90% probability of OTM
• Even out the dollar risk between the Put and Calls to not exceed $1,000 (technical) for the week.

P&L and Performance Status

YTD (2019)

Realized Net Profit from Spreads: -$969.40
Spreads started: 78
Realized ROC (target = 72% for the year): -24.5%

A little caveat to the dismal P&L shown above. Throughout this year, I made a lot of rookie mistakes, and I’m still paying the price. It’s going to take a couple of months to recoup. But I do feel I have improved my trading understanding to fair better.

Last Month (Oct)

Realized Profit: $88.50
Spreads Started: 13 (6 Spreads closed)
Realized ROC (target = 6.0%): 4.4%

Spread Trades Won: 5
Spread Trades Lost: 1

Month to Date (Nov)

Realized Profit: $0.00 (no spreads closed)
Spreads Started: 3 (0 Spreads closed)
Current at risk $$$ for Spreads (original Max: $3,960): $3,065.00 (77% of max risk)
Realized ROC (original target = 6.0%): 0.0%

Spread Trades Won: 0
Spread Trades Lost: 0
Win/Loss Ratio: 0%

Schedule for this Week

Goal for Week:

• Max technical dollars at risk = $1,000
• Coordinate traded expiration dates to have a blend of Call/Put Credit Spreads
  • Minimize actual dollars at risk for any given expiration date.
  • Give the Call Spreads higher risk tolerance (more risk with calls than with puts).
• Place no more than one trade per day – except Friday (catch up day).

Monday:

• Review and tweak the Trend-Channels for the general market direction.
• Determine if the IV is high or low so I can better choose Call or Put spreads.
  • If VIX/IV is low and/or falling, the general market trend should have a stronger inclination to move up. Thus Call spreads will be at a higher risk of achieving ITM.
  • If the VIX/IV is high and/or rising rapidly, then market turmoil will be more likely, making Put spreads a higher risk.
• Review and tweak Trend-Channels for all stocks in watch list.
• Confirm that the target expiration date for all options trades is set as follows:
  • Bull Call Credit Spreads: Nov 29 (4-weeks).
  • Bull Put Credit Spreads: Dec 13 (6-weeks).
• Stage possible trades for all watch list stocks by 10:00 AM
• NO TRADING BEFORE 10 AM. (Let the market find its direction after the weekend.)
• Watch 1 Webcast or take one online mini-course to be completed by Friday.  

Tuesday – Thursday:

• Review how yesterday’s staged trades moved. Adjust premiums to take advantage of movement as “long-shots”). 
• Submit a couple of Spreads, but keep a close watch. If one takes, cancel the others (we just want one new active trade). 
  • all short-strikes to be close to or more than one Standard Deviation (1-SD) from the current price)
  • depending on intuition from the VIX:
    • short-strikes for Put Spreads = close to but not below 80% prob-OTM
    • short-strikes for Call Spreads = close to but not over 90% prob-OTM
  • Balance the spread strategy (Call/Put) to minimize actual risk for that expiration date.
• Update trading log file and journal (this blog) with any accepted trades.

Friday:

• Review the total technical dollars at risk for this week. If significantly below $1,000 then submit additional spreads.
• Update and post weekly journal (this blog) with any lessons learned or strategy changes.

Trades Ended This Week

IWM: 160c/162c – 1 Contract – Open 10/17 – Expires 11/15 – Credit = $19.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 87.4%, ROC = 10.6%, Max Risk = $179.00, Max Gain = $20.00
OTM Probability at closing = 62.4%

The market opens at new all-time highs 11/4 sending my IWM position skyrocketing. The probability of touch was up to 88% my early morning. Even though I am still 11-days out I decided to early close this at a lower loss.

I bought this trade at the debit price of -$50 (debit = $.68 / share * 100 shares – $1.00 trading fee + $19.00 premium already collected.)

Closing this position nearly 2 weeks early was a mistake. There is still eleven days of time value to these options and eleven days for IWM to make adjustments. I need to consider a new rule to only falling positions during the final week – not when there is plenty of time to recover.

DIA: 259p/255p – 1 Contract – Open 10/15 – Expires 11/8 – Credit = $32.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 83.7%, ROC = 8.7%, Max Risk = $366.00, Max Gain = $33.00
OTM Probability at close = 99%
Expire worthless 11/8

SPY: 293p/290p – 1 Contract – Open 10/31 – Expires 11/15 – Credit = $21.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 84.9%, ROR = 7.6%, Max Risk = $277.00

Received a sell signal to close this position 1 week early for a debit of $.02 * 100 shares + ($.50 trading fee * 2 legs) = $3.00. Total profit from this trade = $22.00 premiums collected – $1.00 trading fee to open the position – $3.00 debit to close the position = $18.00 (82% of max gain).

Trades Still Cooking

DIA: 277c/283 – 1 Contract – Open 10/9 – Expires 11/15 – Credit = $42.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 80.7%, ROC = 9.2%, Max Risk = $456.00, Max Gain = $42.00
Now Probability OTM = 87.4%

QQQ: 202c/204c – 1 Contract – Open 10/24 – Expires 11/22 – Credit = $19.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 88.4%, ROR = 10.6%, Max Risk = $179.00
Now Probability OTM = 88.3%

SPY: 311c/313c – 1 Contract – Open 10/24 – Expires 11/22 – Credit = $18.00
(Vertical Bull Car Credit Spread)
Open: Prob. OTM = 89.3%, ROR = 9.4%, Max Risk = $181.00
Now Probability OTM = 75.9%

DIA: 259p/256p – 1 Contract – Open 10/25 – Expires 11/22 – Credit = $28.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 82.9%, ROR = 10.4%, Max Risk = $270.00
Now Probability OTM = 86.4%

SPY: 285p/281p – 1 Contract – Open 10/22 – Expires 11/29 – Credit = $38.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 81.6%, ROR = 10.6%, Max Risk = $360.00
Now Probability OTM = 82.3%

DIA: 259p/256p – 1 Contract – Open 10/28 – Expires 12/06 – Credit = $30.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 81.5%, ROR = 11.2%, Max Risk = $268.00
Now Probability OTM = 83.1%

New Trades for This Week

Spreads started this week: 3 (1 Bull Put Credit, 1 Bull Call Credit, 1 Bull Call Debit)
Potential week’s profit: $112.00 (not realized)
Technical dollars put at risk (max= $1,000): $785.00 (ROR: 14.3%)
Actual dollars at risk: $262.00 (ROR: 42.7%)

QQQ: 188p/185p – 1 Contract – Open 11/05 – Expires 12/13 – Credit = $37.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 83.1%, ROR = 13.7%, Max Risk = $262.00
Now Probability OTM = 83.2%

QQQ is about to breach the top edge of the Trend Channel. This breach could be a signal that it will pull back reasonably soon. I may also look at QQQ for a Vertical Bull Call Credit Spread.

I’m still trading the trend of this trade. QQQ’s current price is above the 9-day SMA, and the 9-day SMA is well above the 50-day. The Trend Channel is also rising, so I don’t have too much reason to be a concern.

The short strike price of $188 is below 1-SD of the current rate, and it also falls below the Trend Channel for Dec 13.

SPY: 316c/321c – 1 Contract – Open 11/06 – Expires 11/29 – Credit = $26.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 89.5%, ROR = 5.5%, Max Risk = $472.00
Now Probability OTM = 89.8%

The expiration week of Nov 29 only had 1 trade in play – a Vertical Bull Put Credit Spread. To counterbalance the risk for that week, I need to get a Call Credit spread in play.

The S&P 500 has broken through it all-time highs this past two weeks so I am expecting either a slowdown or a pullback while traders cash in.

This SPY trade is trading against the trend with the short-strike below 1-SD of the current price, but still well above the trend channel for the expiration date.

SPY: 310c/309c – 1 Contract – Open 11/08 – Expires 11/29 – Debit= $51.00
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 43.4%, ROR = 96.1%, Max Risk = $51.00, Max Gain = $49.00
Now Probability ITM = 43.3%

I haven’t had too much luck with Call Debit Spreads this year. It seems each time I open one the market takes and takes it out. But for the week ending Nov 29, I have one Call Credit position with a high probability of expiring OTM as well as a Put Credit Position.

In 21 days from now, if the market ends lower than today’s price I can lose the $51 this debit spread cost me. But that loss would be offset by the win of the Call Credit position.

Also, 21 days from now if the market skyrockets past the Call Credit’s $316 short strike, whatever I lose there will be offset with the $49 profit here. The Goldilocks zone for the week ending Nov 29 will be for SPY to close between 309 and 316. Is this not a Strangle?

Epilogue

Although the general sentiment for the market remains high with a couple of record-setting days. But history usually says that a pull-back will follow fairly soon as traders tend to cash in on their winning positions.

Cheers…