French journalist: Inspector, do you know if the killer was a man or woman?
Inspector Jacques Clouseau: Well of course I know that! What else is there?
A kitten?

Jacques Clouseau – (Movie: Pink Panther)

Commentary

In this week’s commentary, I want to investigate if I can use the amplitude of the most recent VIX weeks to suggest an appropriate expiration date for new Vertical Bull Put Credit Spreads. Since the VIX is one way to measure current Market-Thrashing (volatility), knowing the VIX Amplitude may provide a hint for a longer or shorter spread duration to enter. But first, I need to define the VIX Amplitude.

Generally, amplitudes are mostly applied to waveform functions, such as sound waves. It is typically seen as vibrations or an oscillation measurement from a position of equilibrium.

Increasing or decreasing the amplitude for a sound wave will cause the sound to get louder or softer. By extension, is it reasonable to think that an increasing or decreasing VIX-Amplitude should expand or decrease the duration of a new Vertical Spread trade?

Can the VIX have an Amplitude?

The VIX is a 30-day, forward-looking reference as to what the Marketeers “believe” the Markets directions could be. The VIX programs sift through all the 30-day Put Options purchases via the CBOE and will calculate an Implied Volatility value for any given day. If the Marketeers are in total disagreement on what they predict the future prices would be, the calculated Implied Volatility will be very high. But if they are mostly in agreement, the VIX values will be small.

I can illustrate a VIX-Amplitude by drawing a straight line through the equilibrium center of a VIX graph. Then measure the distance from that line to the highest or lowest points of the VIX graph. The greater the delta distance between these highs and lows, the greater the volatility is expected. This volatility is a measurement of Markets’ thrashing.

Can the VIX Amplitude suggest a Spread Durations?

Currently, my Options Spread strategy is to trade “monthlys”. Given my daily timing, this means that a new Vertical Spread position entered today will have an expiration date between three to five weeks from now. But in an environment of wild Market Thrashing, it seems that a short-term spread duration is probably much riskier than a longer-term position.

Is there a correlation between the VIX Amplitude and the time expected for a trade to succeed? If the thrashing is high, then does that require more time for a trend trade to succeed? And conversely, if the thrashing is low, then should a shorter time is prudent?

Read more details from the VIX chart

I see that the VIX’s value is falling from this three-month VIX chart, plus the VIX-Amplitude is lowering. This combination of events suggests the Marketeers are in increasing agreement that the current market trend will remain bullish (but at a slower rate).

This combination of events should suggest to me that I can achieve a successful trade in a shorter amount of time.

For me, the greater the odds, the greater the shal-ahnje.
And as always, I accept the shal-ahnje.
(Inspector Clouseau)

This Week’s Market Sentiment

(As of 06/01/2020)

VIX – Broad Market Volatility:

VIX = 9-Day SMA continues a slow fall to 29 from 31 last week.

The VIX is an emotion-gauge for the general investing population. It is thought to be driven by the Marketeers’ current level of greed or fear. As a one-month forward-looking volatility matrix, it is not designed to tell us which direction the market will be going, but more of how fast it can get there.

A VIX of 15 is assumed to be a market at rest. But since the intrinsic nature of the Stock Market is to move up, a VIX closer to 15 will have an innate tendency to rise.

The VIX continues to slowly level-out from the high volatility days of March and April. The daily VIX fell to 28 by the end-of-day last Friday, 5/29/20. This value continues to stay lower to the 9-Day SMA, which is lower than the 50-Day SMA.

With the CBOE volatility slowing dropping (but still high), I would expect the daily Markets Thrashing to continue to recede a bit more and most individual stocks or ETFs to start making better trends.

I am also going to start looking at the amplitude of the VIX as a guide to the length of any prospective spread trade. As a suggestion, if the VIX-Amplitude over the previous 2-4 weeks is higher than the 2-4 weeks prior, then I will expect the trade duration to take longer to move into the targeted area. 

The higher VIX will help generate higher premiums for spread positions, but at the same time, there will continue to be a little sphincter-clinching as to what trades will succeed. The VIX amplitude this past week displays a noticeable settling, but the previous three weeks had some wild rides.

The trajectory of the current VIX trend channel continues to suggest a bullish direction. The smaller amplitude indicates a shorter time.

Put/Call Ratio:

9-day SMA (all OCC options): dropped slightly to .70 from .75 last week.

Put Options are frequently used as protections against existing investments falling. When the ratio between Put Options bought vs. Call Options bought are above 1, then this is an indicator that the Marketeers are buying insurance to what they may see as declining Markets. Conversely, when the Put/Call Ratio falls below 1, then there is a general sense that the broader Markets will increase, and more investors are buying more than selling.

The trend shows the Marketeers to be reasonably comfortable with their portfolio. It is interesting to note that the 0.7 ratio is pretty much in line with the pre-COVID-Crash when the market was in explosive growth.

This Put/Call Ratio trend continues to show that the Marketeers are moving towards re-accumulation.

The current Put/Call indicator is well below 1.0 and trending down. This pattern suggests we are in a bullish direction.

Consumer Sentiment Index (CSI):

The CSI chart above has not been updated since the start of May. But the late-stage prediction for June is somewhere near 82. This predicted CSI is (or could be) a small rebound as the University of Michigan is finalizing these numbers.

I will interpret an 82 as being still confused as to the status of the economic recovery. There still are several States that are delaying the opening for business, and unemployment will continue to be mega-high for a while longer.

Market Indexes:

DOW = 25,383 – Up 3.7% from 24,465 last week.
S&P 500 = 3,044 – Up 3.0% from 2,955 last week.

This minor rebound for the CSI indicator suggests bullish Markets.

The S&P 500 is a stock market index that tracks the 500 largest companies in the U.S. This index represents about 80% of all the capitalization for the country. The S&P is widely considered the best indicator of how all the U.S. markets are performing.

At what may be a good omen, the S&P 500 ended up 3% last week, on top of being up 3% for the week before. Plus, the index surpassed the 3,000 level for the first time last week is a huge physiological importance.

The current value of 3,044 is higher than the 90-Day SMA. And the 9-Day is higher than the 50-Day SMA.

These two technical indicators strongly suggest that we are in a bullish trajectory.

Geopolitical tree-shakers are:

• The “Hong Kong” effect if the US changes its trading status
• Riots that are breaking out across several US major cities
• Stimulus bill being discussed in both Washington and the EU
• Election year politics continue to exacerbate COVID-19 and economy fears
• Hopeful news on Coronavirus vaccines and treatments by the end of 2020

My sentiment for this coming week:

I am not too concern about the manifestation of riots that are breaking out in several major cities. I can understand a localized response in Minneapolis since George Floyd was one of their own. Protests across the country are also expected since protesting is a US institution. But violent rioting and looting across sever major city is a sure sign that the outrage has been hijacked to an organization. Antiva and Black Lives Matter are organized to exacerbate events like this. It will be short-lived.

Of the big-four indicators above, the VIX, P/C Ratio, and the S&P continue to move in Bull Market territory. But the high VIX suggests that the Marketeers are still mostly on edge, and any marginally disturbing news can shift directions fast.

The lack of a revised CSI should be interpreted as neutral. But I’m projecting this indicator to be bullish simply because of the reopening efforts.

For this week:

All four of the indicators above support the bullish perception, but it may be more of a slow-going slog.

Over the past three weeks, the VIX-Amplitude suggests that a news spark could through a short-term trade into negative territory.

Therefore, I continue to be bullish, but it may need more time to manifest success.

This week, I will focus on:

1. Limit the max risk per trade to <$200
2. Limit the number of new trades and keep the week’s total dollar risk < $500
3. Will focus on longer-term trades: 4-5 weeks.
4. Close exiting position as soon as the minimum exit price threshold is hit
5. Bull Credit spreads only (need positive cash flow for psychological reasons)
6. Set trade triggers and exit positions as soon as possible

Profit and Loss Statement

(As of 06/05/2020)

	Year	Month	Week #
	2020	June	23
Beginning Account Balance	$9,000.	$4,716.26	$4,716.26
Deposits (Div. & Int.)	$38.44	$0.00	$0.00
Withdraws (paycheck)	-$1,375.24	$0.00	$0.00
Premiums on Open	$2,297.00	$255.00	$255.00
Premiums on Close	-$5,308.00	-$413.00	-$413.00
Fees Paid (total)	-$104.89	-$10.95	-$10.95
Ending Account Balance	$4,547.31	$4,547.31	$4,547.31
Total Gain/Loss	-$4,452.69	-$168.95	-$168.95
ROR		-3.6%	-3.6%
ROC	-34.6%

Realized Profit by Strategy

		Year	Month	Week #
		2020	June	23
Vertical Bull Put Credit Spread		-$3,018.16	$175.83	$175.83
Vertical Bear Call Credit Spread		-$182.79	$0.	$0.
Vertical Bull Put Debit Spread		$0.	$0.	$0.
Vertical Bull Call Debit Spread		-$66.83	$0.	$0.
Icon Condors		$0.	$0.	$0.
Cover Calls		–	–	–
Total		-$3,267.78	$175.83	$175.83

Schedule for this Week

Goals for this week: (06/01/20 – 06/05/20) (Week 23)

• Max technical dollars at risk (for the week) = $500.
• Max dollar risk per trade (new trades) = $250.
• Update Trading Log as trades occurs

Entry Rules for Vertical Bull Put Credit Spreads:

• Expiration date set at <= 5 weeks?:
• Probability of OTM > 50%?:
• Dollar risk set at or below $200.00?:
• Put/Call ratio below 1.0, or flat, or falling over that last 2-3 weeks?:
• The Trend-Channel is Bullish?:
• Short-Strike price below the trend channel at expiration?:
• Shortstrike price below 1 standard deviation from current price?:
• Current ETF price within the bottom 1/2 of Bull Trend Channel?:
• Current ETF 1-week or 2-week trajectory bullish?:
• 9-Day SMA above 50-Day SMA?:
• ROR > 50%?:
• Set a GTC trade trigger to close at 35% max gain?:

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 Credit Spreads: July 02 (<5 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 is accepted, 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 $500, 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 06/05/2020)

Spread Count Summary:

		Year	Month	Week #
		2020	June	23
Vertical Bull Put Credit Spread		37	3	3
Vertical Bear Call Credit Spread		12	0	0
Vertical Bull Put Debit Spread		0	0	0
Vertical Bull Call Debit Spread		7	0	0
Iron Condor		0	0	0
Total		56	3	3

Current Dollars at Risk:

		Year	Month	Week #
		2020	June	23
Vertical Bull Put Credit Spread		$296.	$296.	$296.
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		$296.	$296.	$296.
Max Risk Allowed		$1,500.00		$500.00

New Trades Opened This Week

(06/01/2020 – 06/05/2020)

QQQ: 234p/232p (1 contract) – Open 06/04/20 – Expires 06/26/20 – Max Gain = $66.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=55.9%, ROR=48.9%, PC/Ratio=2.2, Max Loss=$133.00, IV%=20%

Entry Rules for Vertical Bull Put Credit Spreads:

• Expiration date set at <= 5 weeks?: Yes (22 days)
• Probability of OTM > 50%?: Yes (54.9%)
• Dollar risk set at or below $200.00?: Yes ($133.00)
• Put/Call ratio below 1.0, or flat, or falling over that last 2-3 weeks?: No (2.3)
• The Trend-Channel is Bullish?: Yes (See chart)
• Short-Strike price below the trend channel at expiration?: Yes (See chart)
• Shortstrike price below 1 standard deviation from current price?:
• Current ETF price within the bottom 1/2 of Bull Trend Channel?: No (revising rule)
• Current ETF 1-week or 2-week trajectory bullish?: Yes (See chart)
• 9-Day SMA above 50-Day SMA?: Yes (See chart)
• ROR > 50%?: No (48.9%)
• Set a GTC trade trigger to close at 35% max gain?: Yes ($0.43)

The Put/Call Ratio for QQQ has been in steady growth over the past weeks (1.1, 1.6, 2.2). When I submitted this traded into the Think or Swim queue, the P/C ratio was 1.5. So I was calling this mostly flat.

In what might have been a “glitch” in the Watch List updates, the ROR for this trade at a premium of .66 was showing 50.1%. When this trade was executed, the ROR was displaying the correct percentage of 48.9%. The correct target premium should have been .67, and that would have traded. – Oh well…

DIA: 258p/255p (1 contract) – Open 06/03/20 – Expires 06/26/20 – Max Gain = $101.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=55.3%, ROR=50.5%, PC/Ratio=1.3, Max Loss=$198.00, IV%=23%

Entry Rules for Vertical Bull Put Credit Spreads:

• Expiration date set at <= 5 weeks?: Yes (23 days)
• Probability of OTM > 50%?: Yes (54.3%)
• Dollar risk set at or below $200.00?: Yes ($198.00)
• Put/Call ratio below 1.0, or flat, or falling over that last 2-3 weeks?: No (1.3)
• The Trend-Channel is Bullish?: Yes (See chart)
• Short-Strike price below the trend channel at expiration?: No (See chart)
• Shortstrike price below 1 standard deviation from current price?:
• Current ETF price within the bottom 1/2 of Bull Trend Channel?: No (revising rule)
• Current ETF 1-week or 2-week trajectory bullish?: Yes (See chart)
• 9-Day SMA above 50-Day SMA?: Yes (See chart)
• ROR > 50%?: Yes (50.4%)
• Set a GTC trade trigger to close at 35% max gain?: Yes ($0.66)

The Put/Call Ratio for DIA but is mostly flat from over the last two weeks (1.8, 1.1, 1.3).

The Short-Strike Strike price being inside the trend channel (not below it) was a surprise after the trade was executed. I was too focused on the 2-week trajectory to did not pay attention to this Entry Rule requirement – my bad. If I had noticed this before execution, I would have canceled.

However, the current DIA ETF value has broken through the top of the trend channel and appears to be redefining the channel more bullish.

MA: 295p/292.5p (1 contract) – Open 06/01/20 – Expires 06/26/20 – Max Gain = $88.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=58.2%, ROR=54.0%, PC/Ratio=0.6, Max Loss=$161.00, IV%=18%

Entry Rules for Vertical Bull Put Credit Spreads:

• Expiration date set at <= 5 weeks?: Yes (25 days)
• Probability of OTM > 50%?: Yes (58.2%)
• Dollar risk set at or below $200.00?: Yes ($161.00)
• Put/Call ratio below 1.0, or flat, or falling over that last 2-3 weeks?: Yes (0.6)
• The Trend-Channel is Bullish?: Yes (See chart)
• Shortstrike price below the trend channel at expiration?: Yes (See chart)
• Shortstrike price below 1 standard deviation from current price?:
• Current ETF price within the bottom 1/2 of Bull Trend Channel?: No (revising rule)
• Current ETF 1-week or 2-week trajectory bullish?: Yes (See chart)
• 9-Day SMA above 50-Day SMA?: Yes (See chart)
• ROR > 50%?: Yes (54%)
• Set a GTC trade trigger to close at 35% max gain?: Yes ($0.57)

For this trade, I am revising the Entry Rule by removing the “ETF Price within the bottom 1/2 of the trend-channel” to “most recent price movement (1-2 weeks) trajectory is bullish.” I’m thinking that I should not enter a new position in the direction of the underlining is already moving against the current bullish trend-channel.

Trades Currently Cooking

(As of 06/05/2020)

This week ended with a profound jump in the market by over 800 points on Friday and 500 points on Wednesday. This jump activated all the trade-triggers set for this week. So, other than those trades opened this week, we have nothing cooking. This is good.

Current Trades Closed

(As of 06/05/2020)

Note: the dramatic climb in the Markets this week activated seven trade-triggers for my active portfolio. This event sealed a $192 realized profit for one week. Statistically speaking – this is huge!

MA: 297.5p/295p (1 contract) – Open 05/29/20 – Expires 06/19/20 – Max Gain = $85.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=56.4%, ROR=51.2%, PC/Ratio=0.7, Max Loss=$164.00, IV%=18%
At Close: Prob. OTM=78.2%, PC/Ratio=0.7, IV%=9%, ROR=26.2%

Cost to open: $.85 premium collected * 100 shares * 1 contracts = $85.00
Cost to close: -$.43 premium paid * 100 shares * 1 contracts  = -$43.00
Net profit = $86.00 to open – $43.00 to close = $43.00 – fees
Actual ROR = $43.00 / $164.00= 26.2%

This position was closed via a trade-trigger set at 50% of max gain on 6/5/20. This position was opened only one week from today, so securing 50% of maximum gain within 1 weeks is good.

MSFT: 185p/182.5p (1 contract) – Open 05/19/20 – Expires 06/12/20 – Max Gain = $95.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=50.2%, ROR=61.0%, PC/Ratio=0.4, Max Loss=$154.00, IV%=17%
Current: Prob. OTM=35.2%, PC/Ratio=0.6, IV%=19%
At Close: Prob. OTM=62.5%, PC/Ratio=0.4, IV%=17%, ROR=13%

Cost to open: $.95 premium collected * 100 shares * 1 contracts = $95.00
Cost to close: -$.76 premium paid * 100 shares * 1 contracts  = -$76.00
Net profit = $96.00 to open – $76.00 to close = $20.00 – fees
Actual ROR = $20.00 / $154.00= 13%

This position was closed via a trade-trigger set at 20% of max gain on 6/5/20. This position still had one more week to cook, but it has been under water since it open. This closing seals a 13% ROR and makes available $154 for an extra trade this week. – This is good.

DIA: 258p/255p (1 contract) – Open 06/03/20 – Expires 06/26/20 – Max Gain = $101.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=55.3%, ROR=50.5%, PC/Ratio=1.3, Max Loss=$198.00, IV%=23%
At Close: Prob. OTM=75.4%, PC/Ratio=0.8, IV%=19%, ROR=21.7%

Cost to open: $1.01 premium collected * 100 shares * 1 contracts = $101.00
Cost to close: -$.58 premium paid * 100 shares * 1 contracts  = -$58.00
Net profit = $101.00 to open – $58.00 to close = $43.00 – fees
Actual ROR = $43.00 / $198.00= 21.7%

This position was closed via a trade-trigger set at 42.5% of max gain on 6/5/20, less than two days from its opening. This closing seals a 22% ROR and makes available $198 for an extra trade this week. – This is good.

AAPL: 315p/312.5p (1 contract) – Open 05/21/20 – Expires 06/12/20 – Max Gain = $84.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=56.5%, ROR=50.3%, PC/Ratio=0.6, Max Loss=$165.00, IV%=17%
At Close: Prob. OTM=75.7%, PC/Ratio=0.8, IV%=22%, ROR=25.5%

Cost to open: $.84 premium collected * 100 shares * 1 contracts = $84.00
Cost to close: -$.42 premium paid * 100 shares * 1 contracts  = -$42.00
Net profit = $84.00 to open – $42.00 to close = $42.00 – fees
Actual ROR = $42.00 / $165.00= 25.5%

This position was closed via a trade-trigger set at 50% of max gain on 6/3/20, less than two weeks from its opening. This closing seals a 25% ROR and makes available $165 for an extra trade this week. – This is good.

DIA: 254p/252p (1 contract) – Open 05/28/20 – Expires 06/19/20 – Max Gain = $70.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=51.3%, ROR=53.5%, PC/Ratio=1.1, Max Loss=$129.00, IV%=27%
At Close: Prob. OTM=67.1%, PC/Ratio=1.4, IV%=22%, ROR=18.6%

Cost to open: $.70 premium collected * 100 shares * 1 contracts = $70.00
Cost to close: -$.46 premium paid * 100 shares * 1 contracts  = -$46.00
Net profit = $70.00 to open – $46.00 to close = $24.00 – fees
Actual ROR = $24.00 / $129.00= 18.6%

This position was closed via a trade-trigger set at 35% of max gain on 6/3/20, less than one week from its opening. This closing seals a 19% ROR and makes available $129 for an extra trade this week. – This is good.

MSFT: 182.5p/180p (1 contract) – Open 05/12/20 – Expires 06/05/20 – Max Gain = $85.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=56.1%, ROR=51.2%, PC/Ratio=0.6, Max Loss=$164.00, IV%=17%
Current: Prob. OTM=43.7%, PC/Ratio=0.6, IV%=19%
At Close: Prob. OTM=49.3%, PC/Ratio=0.6, IV%=18%, ROR=-5.5%

Cost to open: $.85 premium collected * 100 shares * 1 contracts = $85.00
Cost to close: -$.94 premium paid * 100 shares * 1 contracts  = -$94.00
Net loss = $85.00 to open – $94.00 to close = -$9.00 – fees
Actual ROR = -$9.00 / $164.00= -5.5%

This position was closed via a trade-trigger set at -10% of max gain on 6/1/20.

MSFT has stayed flat to down every since this position was open. With four trading days left, this position’s short-strike was ITM, and the past 4-weeks price trend suggests that it will probably drop more by expiration.

AAPL: 312.5p/310p (1 contract) – Open 05/26/20 – Expires 06/19/20 – Max Gain = $83.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=56.5%, ROR=50.3%, PC/Ratio=0.6, Max Loss=$165.00, IV%=15%
At Close: Prob. OTM=69.6%, PC/Ratio=0.7, IV%=12%, ROR=17.6%

Cost to open: $.84 premium collected * 100 shares * 1 contracts = $84.00
Cost to close: -$.55 premium paid * 100 shares * 1 contracts  = -$55.00
Net profit = $84.00 to open – $55.00 to close = $29.00 – fees
Actual ROR = $29.00 / $165.00= 17.6%%

This position was closed via a trade-trigger set at 35% of max gain on 6/2/20. This position was closed one week after closing for a net profit of $29.

Conclusion

I am not too concern about the economic or market reactions to the manifestation of riots that are breaking out in several major cities. After the first reaction to the video of George Floyd’s murder was knee-jerkiablly understandable, the continued disruption across the nation is nothing more than a political display by a few groups, and very few instigators.

I can definitely understand a sever localized response in Minneapolis – since George Floyd was one of their own. And protests across the country are expected since protesting is a US institution. But violent rioting and looting across sever major city is a sure sign that the outrage has been hijacked by an outside organized effort.

Antifa and/or Black Lives Matter are organized to exacerbate anything like the Floyd tragedy. When the fight has gone out of the community, the Antifa insurgents will return to their bases and toast the anarchy.

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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