“True love is the greatest thing in the world – except for a nice MLT
– Miracle Max (Move: Princess Bride)
– mutton, lettuce, and tomato sandwich,
where the Mutton is nice and lean and the tomato is ripe.”
Commentary
Happy Valentines Day
This week’s commentary is short on any new options trading insights or relevant information. This week, like many weeks to follow, is mostly involved with “Trade Trudging.”
This Week’s Market Sentiment
(As of 02/10/2020)
VIX = 9-Day SMA 16.2, a flat line from 16.2 last weeks ago.
Again, a 9-day SMA VIX of 16.2 is nothing to be overly concerned about. It had popped up above 15 a couple of weeks ago and has leveled at that point. But from whatever trend channel I could mustard from this chart, there does appear to be a low-graded concern lurking in the Market-verse.
9-day SMA (all OCC options): 0.79, a drop from 0.84 a week ago.
The P/C ratio’s 9-Day SMA is above the 50-Day SMA. But if there is a slightly elevated fear showing int he VIX, it is not showing in the Put/Call Ratio. Not too many Marketeers are ducking for cover in the Put Options.
Consumer Sentiment Index (CSI):
It remains a 99.8 through January.
Robust jobs report and high employment are keeping a lot of optimism in our economy today. The Fed’s statement this week is, “there’s no reason why the expansion can’t continue.” And most economists are dismissing any notion of a recession in 2020.
Market Indexes:
DOW 29,195, up 2.2% from 28,548 last weeks ago
S&P 3,338, up 2.5 % from 3,258 two weeks ago
The DOW has been dominantly in the bull trend channel for the past 4 months with a minor correction during the last two weeks.
Geopolitical tree-shakers are:
- Coronavirus continues to push the fear button pretty hard.
- Trumps 2020 budget released
- The 2020 elections are expected to rattle some nerves as we get closer
- The Feds remains content to stay on the sidelines through 2020
My sentiment for this coming week:
A stellar January Jobs Report is helping to fuel the notion that a short term recession is not in the cards. The CSI shows confidence with a side order to concern in the VIX. China announced that it was cutting US Tariffs last week.
The Coronavirus impact on the economy is still uncertain. It is getting top spots in the news cycle, which is probably driving the VIX a little nervous.
Plus… this Friday is Valentine’s Day! Go out and love someone…
For this week:
- Focus on Vertical Bull Put Credit Spreads
- Because the VIX is above 15, set the Prop-OTM > 83%
- Max trade risk set to standard
- Vertical Bear Call Credit only if the VIX continues to rise and stay above 15
- No Vertical Bull Call Debit – market appears primed for a pull-back
Profit and Loss Statement
(As of 02/07/2020)
| Year | Month | Week # | |
| 2020 | Feb | 7 | |
| Beginning Account Balance | $9,000. | $9,027.87 | $9,097.25 |
| Deposits (Div. & Int.) | $12.83 | $0. | $0. |
| Withdraws (paycheck) | -$250. | $0. | $0. |
| Realized Profits (closed spreads) | $125. | $0. | $0. |
| Unrealized Profits (Open spreads) | $308. | $157. | $84. |
| Fees Paid (total) | -$16.66 | -$5.20 | -$2.08 |
| Ending Account Balance | $9,179.17 | $9,179,17 | $9,179.17 |
| Total Gain/Loss | $179.17 | $151.80 | $81.92 |
| Return On Risk | N/A | 9.2% | 8.9% |
| Return On Capital | 4.6% | N/A | N/A |
Realized Profit by Strategy
| Year | Month | Week # | ||
| 2020 | Feb | 7 | ||
| Vertical Bull Put Credit Spread | $114. | $0. | $0. | |
| Vertical Bear Call Credit Spread | $0 | $0. | $0. | |
| Vertical Bull Put Debit Spread | $0. | $0. | $0. | |
| Vertical Bull Call Debit Spread | $11. | $0. | $0. | |
| Icon Condors | $0. | $0. | $0. | |
| Cover Calls | – | – | – | |
| Total | $125. | $0. | $0. | |
Schedule for this Week
Goals for this week: (02/10/20 – 02/14/20) (Week 7)
- Max technical dollars at risk = $1,000
- Max dollar risk per trade = $500
- Update Trading Log as trades occurs
Entry Rules for Vertical Bull Put Credit Spreads:
- Expiration date set at 6 weeks:
- Probability of OTM > 83%
- Dollar risk set at or below $500:
- Put/Call ratio below 1.0 or flat to falling over that last 2-3 weeks:
- VIX below 15 or 9-day SMA within the trend channel
- The Trend-Channel is Bullish:
- Short strike price below the trend channel at expiration:
- Short strike price below 1 standard deviation from current price:
- Current ETF price within the bottom 3/4 of the trend channel:
- 9-Day SMA above 50-Day SMA:
- ROR > 7.5%:
Monday:
- Determine/update this week’s market sentiment section
- Calculate/record Put/Call Ratios for all stocks on the watch list
- Review/tweak Trend-Channels for all stocks in the watch list
- Set target expiration dates for all options as follows:
- Bull Put Credit Spreads: Mar 20 (6-weeks).
- Bull Call Debit Spreads: Mar 6 (4-weeks).
- Look up Ex-Dividend dates for positions in/approaching ITM (MarketWatch/Calendar)
- 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 one 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 movements.
- Submit a couple of Spreads, but keep a close watch. If one takes, cancel the others (we want only one new active trade per day).
- Be mindful of Entry Rules.
Friday:
- Review the total technical dollars at risk for this week. If significantly below $1,000, then submit additional spreads if prudent.
- Update and post weekly journal (this blog) with any lessons learned or strategy changes.
This Week’s Trade Activity
(As of 02/14/2020:)
Spread Count Summary:
| Year | Month | Week # | ||
| 2020 | Feb | 7 | ||
| Vertical Bull Put Credit Spread | 14 | 5 | 2 | |
| Vertical Bear Call Credit Spread | 0 | 0 | 0 | |
| Vertical Bull Put Debit Spread | 0 | 0 | 0 | |
| Vertical Bull Call Debit Spread | 1 | 0 | 0 | |
| Iron Condor | 0 | 0 | 0 | |
| Total | 15 | 5 | 2 | |
Current Dollars at Risk:
| Year | Month | Week # | ||
| 2020 | Feb | 7 | ||
| Vertical Bull Put Credit Spread | $3,292. | $1,643. | $916. | |
| Vertical Bear Call Credit Spread | $0 | $0 | $0 | |
| Vertical Bull Put Debit Spread | $0. | $0. | $0. | |
| Vertical Bull Call Debit Spread | $0 | $0 | $0 | |
| Iron Condor | $0 | $0 | $0 | |
| Total Dollar Risk | $3,292. | $1,643. | $916. | |
| Max Risk Allowed | $4,500.00 | $1,000.00 | ||
New Trades Opened This Week
(02/10/2020 – 02/14/2020)
SPY: 319p/314p – Open 02/13/20 – Expires 03/20/20 – Max Gain = $44.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.1%, ROR=9.5%, PC/Ratio=0.8, Max Loss=$454.00, IV%=40%
Entry Rules:
- Expiration date set at 6 weeks: Yes
- Probability of OTM > 83%: No
- Dollar risk set at or below $500: Yes
- Put/Call ratio below 1.0 or flat to falling over that last 2-3 weeks: Yes
- VIX below 15 or 9-day SMA within the trend channel: No
- The Trend-Channel is Bullish: Yes
- Short strike price below the trend channel at expiration: Yes
- Short strike price below 1 standard deviation from current price: Yes
- Current ETF price within the bottom 3/4 of the trend channel: No
- 9-Day SMA above 50-Day SMA: Yes
- ROR > 7.5%: Yes
The Put/Call Ratio has been dropping steadily this week signaling a lack of concern on SPY moving into a mini-correction. The VIX has also fallen below 15 this week. Both these indicators suggest to me that SPY is staged to continue a moderate uptrend for the next few weeks.
Even though an OTM-Prob of 82.1%
DIA: 277p/272p – Open 02/11/20 – Expires 03/20/20 – Max Gain = $42.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.5%, ROR=9.0%, PC/Ratio=1.2, Max Loss=$457.00, IV%=30%
Entry Rules:
- Expiration date set at 6 weeks: Yes
- Probability of OTM > 83%: Yes
- Dollar risk set at or below $500: Yes
- Put/Call ratio below 1.0 or flat to falling over that last 2-3 weeks: Above 1 put falling
- VIX below 15 or 9-day SMA within the trend channel: No
- The Trend-Channel is Bullish: Yes
- Short strike price below the trend channel at expiration: Yes
- Short strike price below 1 standard deviation from current price: Yes
- Current ETF price within the bottom 3/4 of the trend channel: No
- 9-Day SMA above 50-Day SMA: Yes
- ROR > 7.5%: Yes
Trades Currently Cooking
QQQ: 211p/208p – Open 02/04/20 – Expires 03/13/20 – Credit= $26.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.7%, ROR=9.2%, PC/Ratio=1.8, Max Loss=$273, IV%=32%
DIA: 270p/267.5p – Open 02/04/20 – Expires 03/13/20 – Credit= $23.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.6%, ROR=8.8%, PC/Ratio=1.6, Max Loss=$228, IV%=36%
DIA: 265p/262.5p – Open 02/03/20 – Expires 03/13/20 – Credit= $26.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.0%, ROR=11.2%, PC/Ratio=1.6, Max Loss=$223, IV%=36%
AAPL: 295p/292.5p – Open 01/29/20 – Expires 03/06/20 – Credit= $24.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.0%, ROR=10.2%, PC/Ratio=0.5, Max Loss=$225, IV%=57%
DIA: 270p/267.5p – Open 01/29/20 – Expires 03/06/20 – Credit= $23.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.0%, ROR=9.7%, PC/Ratio=0.9, Max Loss=$225, IV%=57%
SPY: 317p/314p – Open 01/22/20 – Expires 02/28/20 – Credit= $25.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.0%, ROR=8.8%, PC/Ratio=1.3, Max Loss=$274, IV%=57%
QQQ: 206p/201p – Open 01/14/20 – Expires 02/21/20 – Credit= $41.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.2%, ROR=8.5%, PC/Ratio= .5, Max Loss=$459, IV%=14%
Now: Prob. OTM=88.4%
DIA: 281p/276p – Open 01/17/20 – Expires 02/21/20 – Credit= $38.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.3%, ROR=8.3%, PC/Ratio=0.7, Max Loss=$460, IV%=5%
Now: Prob. OTM=82.5
Current Trades Closed
QQQ: 199p/196p – Open 01/07 – Expires 02/14 – Credit= $22.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=86.2%, ROR=8.0%, PC/Ratio=1.5, Max Loss=$276, IV%=16%
Now: Prob. OTM=95.1%
AAPL: 270p/267.5p – Open 01/08 – Expires 02/14 – Credit= $22.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=87.5%, ROR=9.7%, PC/Ratio=0.5, Max Loss=$226, IV%=53%
Now: Prob. OTM=92.9%
QQQ: 206p/203p – Open 01/09 – Expires 02/14 – Credit= $27.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.1%, ROR=10.0%, PC/Ratio=2.0, Max Loss=$271, IV%=13%
Now: Prob. OTM=89.7%
Conclusion
As I’ve heard over and over again, the “Market hates uncertainty.” I’ve seen this cliche manifest into mini-corrections for the past may years. Examples will be last’s year’s negotiations with China on a US/China trade deal. But this year seems to be putting that notion to the test.
I would have thought the market would have defensively pulled back during the Trump impeachment, but it didn’t. There was not too much of a question on his acquittal. The Coronavirus promised a panic, but there is not much of a concern that it will develop into the feared pandemic. And the anticipated November elections are not riling up the Marketeers.
Disclaimer
Even though I have tried to make it clear that this blog is my journal documenting my trek into Options Trading, it has been suggested by others that I, nevertheless, include a general disclaimer. So here goes…
“This blog and the information contained herein is not intended to be a source of advice or analysis concerning the material presented. The information and/or documents contained in the blog do not constitute investment advice.”
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