Every day is a new beginning.
Take a deep breath and 
Start Again.

Prologue

This past year has been one for the books! It will complete 18 months of trading trials, rookie mistakes, and strategic revelations as it comes to a close. So after a year of losses (which I will interpret as the cost of my education), I now look forward to zeroing out my account and starting again.

I also see this past year as just the first chapter of my effort to be a better and “aware” Options Marketeer. Although I now have some battle-scars and stories to tell, I still have a long way to read the market and manage my emotions. Education is a life-long pursuit.

The next several weeks will be a time to reorganize my journal, watch list, and log file in preparation for a new (from zero) start on Jan 1, 2020. The Options trades that I currently have cooking will need to close before Dec 31, so I can begin Jan fresh.

I do not anticipate submitting any new trades in December, primarily because I believe many Marketeers will close out a lot of winning positions as business cycles come to a close. Additionally, tax considerations are going to drive the market into higher volatility. I will continue to monitor and close exiting positions when the percent of max gain reaches 85% or when trying to minimize a loss.

If I submit new trades, it will be a last-ditch test on using Put/Call Ratios in the decision to open. But any new positions will be closed before the end of the year.

I also intend to reduce my journal activities in December since I won’t have too much new stuff to say.

Below I added two new sections for my journal:

  • A Market Sentiment section. I want to articulate my personal interpretation of the current market sentiment for this week’s BEFORE I make any trades decisions.
  • A revised Profit and Loss section that better matches my spreadsheet’s P&L statement.
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This Week’s Market Sentiment

The primary purpose of this new section is to force me to first review the current market sentiment before I consider any new trades for this week. My adjusted schedule will now mandate updating this section along with adjusting Trend-Channels for my watch list, first thing Monday morning.

As of 11/25/2019

General Volatility: VIX = 12.11, up slightly from 12.05 last week
Put/Call Ratio 9-day SMA (all OCC options): .76, slightly up from .75 last week
Consumer Sentiment Index (CSI): 96.8, up from 95.7 last week, down 1.8% from 1-year
DOW 27,974, down slightly from 28,004 from last week
S&P 3,125, up slightly from 3,120.46 from last week

Think or Swim
3-month Put/Call Ratio Graph for All OCC Options

The 9-day SMA ratio for all the Puts and Calls managed by The Options Clearing Corporation (OCC) is just above .75. This ratio signals mainly a sideways moving market that is casually drifting up. Add, VIX is below 15, and neither indices are moving too fast. Without something shaking the tree, I would expect the market to drift in whatever trend-current it in.

For external tree-shakers, the impeachment effort is seeming to peter-out, and the US/China trade agreements are reportingly moving forward. This lack of significant national news is all keeping the CSI at its record high.

The only trimmers I can predict is going to be the usual end-of-year profit-taking sell-off.

My sentiment for this coming week is to not expect the needle to move too much. I would focus primarily on Deep-OTM Vertical Put Bull Credit Spreads but minimize the maximum dollar risk for the week and any trades.

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Profit and Loss Statement

This section has been revised to show a simple snapshot table showing P&L for Year-to-Date, Month-to-Date and current week.

As of 11/29/2019

  Year MonthWeek #
  2020Nov48
Beginning Account Balance $0,000.00$0,000.00$0,000,00
 Deposits$0.00$0.00$0.00
 Widthdraws$0.00$0.00$0.00
     
 Realized Profits
(closed spreads)
-$471.00$-19.00$0.00
 Unrealized profits
(open spreads)
$102.00$102.00$21.00
 Fees Paid (total)-$692.40-$17.00-$1.00
     
Ending Account Balance -$1,061.40$66.00$20.00
     
Total Gain/Loss -$ 1,081.40$ 46.00$20.00
     
     

By far, the biggest loser for the year is the fees I paid to do trading business. To date I have paid over $690 is trading fees, representing 64% of all my losses. If it had not been for the trading fees changes in October, I may have summarily thrown in the towel.

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Realized Profit by Strategy

 YearMonthWeek
 2019Nov48
Vertical Bull Put Credit Spread-$170.00$27.00$0.00
Vertical Bear Call Credit Spread-$372.00-$29.00$0.00
Vertical Bull Put Debit Spread$0.00$0.00$0.00
Vertical Bull Call Debit Spread$75.00-$17.00$0.00
Icon Condors-$4.00$0.00$0.00
Cover Calls
Total-$471.00-$19.00$0.00

Beyond the weighty fees, the worst strategy that I used this year was the Vertical Bear Call Credit Spread. This strategy cost me $372 over just eleven trades.

The only winning strategy was the Vertical Bull Call Debit Spread. I made $75 or eleven trades.

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Schedule for this Week

Here are some possible guidelines when trading Options:

  • A Put/Call Ratio that has oscillated for a time below .5 = sell a Vertical Bull Call Debit Spread
  • A Put/Call Ratio between .5 and 1.0 = sell a Vertical Bull Put Credit Spread
  • A Put/Call Ratio between 1.0 and 2.0 = Sell a Vertical Bear Call Credit Spread
  • A Put/Call Ratio above 2.0 = Sell a Vertical Bear Put Debit Spread

Goals for Week: (11/25/19 – 11/29/19) (Week 48)

  • Do not make any spread trades that will live past Dec 31.
  • Max technical dollars at risk = $750, dn from $1,000 (see Market Sentiment section)
  • Max dollar risk per trade = $350, dn from $500 (see Market Sentiment section)
  • Place no more than one trade per day – except Friday (catch up day).

Monday:

  • Determine/update this week’s market sentiment section.
  • Calculate Put/Call Ratios for all stocks on the watch list.
  • Review and tweak Trend-Channels for all stocks in the watch list.
  • Confirm that the target expiration date for all options trades is set as follows:
    (This week’s trade duration was shorted from 6-weeks to 5-weeks due to the EOY.
    • Bull Put Credit Spreads: Dec 27 (5-weeks).
    • Bull Call Debit Spreads: Dec 27 (5-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). 
    • 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.
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This Week’s Trade Activity

As of 11/22/2019:

Spread Count Summary:

 YearMonthWeek #
 2020Nov48
Vertical Bull Put Credit Spread6041
Vertical Bear Call Credit Spread1140
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread1130
Iron Condor200
Margin Interest Paid100
    
Total Spreads85111

Current Dollars at Risk:

 YearMonthWeek #
 2020Nov48
Vertical Bull Put Credit Spread-$448.00-$448.00-$179.00
Vertical Bear Call Credit Spread$0.00$0.00$0.00
Vertical Bull Put Debit Spread$0.00$0.00$0.00
Vertical Bull Call Debit Spread-$51.00-$51.00$0.00
Iron Condor$0.00$0.00$0.00
    
    
Total Dollar Risk-$499.00-$499.00-$179.00
Max Risk Allowed-$4,500.00 -$1,000.00
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New Trades Opened

IWM: 213p/215p – 1 Contract – Open 11/29 – Expires 12/27 – Credit= $21.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM= 83.2%, ROR = 12.5%, PC/Ratio = 1.64 (Bearish), Max Loss= $176.00
Prob of OTM now = 80.8%

Think or Swim

After I submitted this trade, the parameters became significantly more bearish.

The current price of IWM had just dropped below the 9-day SMA as it has bounced off the top edge of the Trend-Channel. But the 9-day SMA is well above the 5-day. The expiration date of 12/27 is just a couple of days prior to the end of the year, and I do anticipate prices dropping for profit-taking. So the big question is – “why did I take this trade?”

I took this trade because when I submitted it, the trend was signaling bullish – but just barely. As a policy, I should write these synopses before I submit any trades…

Trades Currently Cooking

IWM: 160c/161c – 1 Contract – Open 11/25 – Expires 12/20 – Debit = $50.00
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 44.5%, ROR = 94.1%, PC/Ratio = .77, Max Gain = $48.00
Prob of ITM now = 58%

SPY: 294p/289p – 1 Contract – Open 11/15 – Expires 12/20 – Credit = $31.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 86.1%, ROR = 6.4%, PC/Ratio = 1.41, Max Risk = $468.00
Prob of OTM now = 91%

Current Trades Closed

QQQ: 208c/212c – 1 Contract – Open 11/21 – Expires 12/13 – Credit = $34.00
(Vertical Bear Call Credit Spread)
Open: Prob. OTM = 86.7%, ROR = 9.0%, PC/Ratio = 5.41, Max Risk = $365.00
Prob of OTM at closed = 71.8%

Think or Swim

I’m closing this position sixteen days early at a debit of $70 ($.70 per share * 100 shares). The net loss on this trade is: $32.00 premium already collected – $70.00 premium paid to close the trade – $2.00 trading fees = -$40.00. Even though the Prob-OTM is still above 70%, I’m exiting this position because it is not moving in the direction I thought, and there is too many days left for it to go ITM. I will continue to watch this trade as “paper-money” to see if my I made the right decision.

The current price and the 9-Day SMA for QQQ have broken through the top of the 4-month Trend Channel, and the trajectory of the Put/Call Ratio had quickly moved to the bullish side from 2.78 at open to 1.76 at closed. (The P/C Ratio start above 2.0 initially signaling a slow bearish turn, then it quickly fell, suggesting more Marketeers are beginning to feel that there is still upside.)

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Epilogue

I suspect that I will post at least one more journal at the end of December. Although my financial performance this year came at a cost and is certainly nothing to boast about, it is not nearly as costly as what it could have been.

Just for the record, I would like to document what it cost to make this first step.

Cheers…

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