Give me your tired, your poor,
your huddled masses yearning to breathe free.

– Statue of Liberty 

Commentary

The figurative term “Woke” is getting a rise in today’s slang. According to Dictionary.com, it had its emergence in Black English at least by the 1940s as a metaphor for social justice. By the ’60s, it had a more general meaning of “well-informed” in Black English but heavily aligned with political awareness.

But in the context of this week’s commentary, I’m going to extend the “woke” definition to the brutality of Options Trading during the COVID-Crash.

Options Trading for income is a never-ending education and reeducation in the policies of economics versus group-psychology. There is a systemic conflict (cultural clash) between these two competing philosophies that seem to work against each other. However, when coordinated, it can successfully work towards the same goal – prosperity.

Systemic conflicts are the ugly side of Options Trading – pitting two sides of a trade against each other where one side will lose. But these types of conflicts are how we learn. The successful trader seems to be the one with the most experience and the most scares.

This week’s commentary got sidelined with the George Floyd public murder and the national debate that followed. Culture Clashes are systemic to Options Trading for Income as well as American values. This steered into a tangent of the “taking a knee” as a symbol of Black oppression.

But I do digress in the news of the day…

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This Week’s Market Sentiment

(As of 06/01/2020)

Broad Market Volatility:
VIX = 9-Day SMA continues a slow fall to 27 from 29 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.

Annotation 2020-06-07 081402VIX
CBOE Market Volatility Index

The VIX continues to wane from the high volatility days of March and April. The daily VIX fell to 24.5 by the end-of-day last Friday, 6/5/20. This value continues to stay below the 9-Day SMA, which is lower than the 50-Day SMA.

In this week’s VIX chart, I narrowed the trend channel quite a bit. This narrowing of the VIX Amplitude and the falling VIX value implies that the Marketeers are coming more and more into an agreement that that economy is quickly recovering.

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 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 .67 from .70 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.

Annotation 2020-06-07 081402PCR
Put/Call Ratio for all OCC Options

The trend shows the Marketeers to continue to be reasonably comfortable with their portfolio. It is interesting to note that the ratio at the end of the last trading week broke through the bottom of the trend channel.

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):

Annotation 2020-06-07 081402CSI

The CSI chart above was revised slightly lower for May from 73.7 to 72.3. This level remains close to the eight-year low of last month of 71.8. But the preliminaries for the June chart suggest a sentiment lever nearing 82.

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

This minor rebound for the CSI indicator continues to suggest bullish Markets.

Market Indexes:
DOW = 27,111 – Up 6.8% from 25,383 last week.
S&P 500 = 3,194 – Up 4.9% from 3,044 last week.

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.

Annotation 2020-06-07 081402SP500
S&P 500 Index

At what continues to be a good omen, the S&P 500 ended its third straight week over 3% for each week. At the current level of 3,194, the S&P 500 is now only 10% from its pre-pandemic high. That’s a recovery of over 20% in about two months.

The current value of 3,194 is higher than the 9-Day SMA. And the 9-Day is higher than the 50-Day SMA.

I need to be careful about these indicators. Experience has demonstrated that Market Exuberance on one day has been followed by nearly equal correction on the next. The nearly 1,000 points rising on the surprising jobs number this past Friday was great news and a definite illustration of “Market Exuberance.” But the Jobs Report was released mid-Friday, and the Marketeers will have all weekend to reevaluate and reassess their Friday reaction. I would strongly recommend that I do not make any trades until reason is settled – which may not be until Tues 6/9/20.

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

Geopolitical tree-shakers are:

  • Riots that are breaking out across several US major cities
  • Increase number of COVID-19 following States reopening
  • Stimulus bill being discussed in Washington
  • Election year politics continue to exacerbate economy fears

By far, the largest tree-shaker at this point is the heating up November Presidential election. One political party has to convince everyone just how the economy and the nation sucks and that we need new leadership for the government. The other party is working hard to convince everyone that everything is rosy. Faux-Journalists are working hard to spin a political picture for their viewpoints. At this point, I will not listen to ANY economic commentators on what to expect for the economy. Way too many of them have a political agenda.

My sentiment for this coming week:

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 <$250
  2. Limit the number of new trades and keep the week’s total dollar risk < $750
  3. Keep the overall dollar risk to be below $1,500 (with an effort at <$1,000)
  4. Will focus on mid-term trades: 4-5 weeks.
  5. Close exiting position as soon as the minimum exit price threshold is hit
  6. Bull Credit spreads only (need positive cash flow for psychological reasons)
  7. Set trade triggers and exit positions as soon as possible
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Profit and Loss Statement

(As of 06/12/2020)

YearMonthWeek #
2020June24
Beginning Account Balance$9,000.$4,716.26$4,547.31
Deposits (Div. & Int.)$38.44$0.00$0.00
Withdraws (paycheck)-$1,375.24$0.00$0.00
Premiums on Open$2,568.00$526.00$271.00
Premiums on Close-$5,434.00-$539.00-$126.00
Fees Paid (total)-$111.22-$17.28-$6.33
Ending Account Balance $4,685.98$4,685.98$4,685.98
Total Gain/Loss-$4,314.02-$30.28$138.67
ROR-0.6%3.0%
ROC-33.1%

Realized Profit by Strategy

Year Month Week #
2020 June 24
Vertical Bull Put Credit Spread -$2,912.48 $281.51 $105.68
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 -$3,162.10 $281.51 $105.68

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Schedule for this Week

Goals for this week: (06/08/20 – 06/12/20) (Week 24)

  • 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 (<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 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.

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This Week’s Trade Activity

(As of 06/12/2020)

Spread Count Summary:

Year Month Week #
2020 June 24
Vertical Bull Put Credit Spread 40 6 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 59 6 3

Current Dollars at Risk:

Year Month Week #
2020 June 24
Vertical Bull Put Credit Spread $363. $363. $363.
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 $363. $363. $363.
Max Risk Allowed $1,500.00 $500.00

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New Trades Opened This Week

(06/08/2020 – 06/12/2020)

The number of new trades this week was muted due to the significant Markets correction that happened on Thursday (6/11).

SPY: 317p/314p (1 contract) – Open 06/10/20 – Expires 07/02/20 – Max Gain = $101.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=53.3%, ROR=50.5%, PC/Ratio=1.1, Max Loss=$198.00, IV%=26%

Annotation 2020-06-10 090850SP500

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 5 weeks?: Yes (22 days)
  • Probability of OTM > 50%?: Yes (53.3%)
  • 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?: Yes (flat)
  • 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?:
  • 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 (50.5%)
  • Set a GTC trade trigger to close at 35% max gain?: Yes ($0.66)

MSFT: 185p/182.5p (1 contract) – Open 06/09/20 – Expires 07/02/20 – Max Gain = $84.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=57.1%, ROR=50.3%, PC/Ratio=0.3, Max Loss=$165.00, IV%=18%

Annotation 2020-06-09 090834MSFT

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 5 weeks?: Yes (23 days)
  • Probability of OTM > 50%?: Yes (57.1%)
  • Dollar risk set at or below $200.00?: Yes ($165.00)
  • Put/Call ratio below 1.0, or flat, or falling over that last 2-3 weeks?: Yes (0.3)
  • 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?:
  • 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 (50.3%)
  • Set a GTC trade trigger to close at 35% max gain?: Yes ($0.55)

MA: 302.5p/300p (1 contract) – Open 06/09/20 – Expires 07/02/20 – Max Gain = $86.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=57.1%, ROR=58.2%, PC/Ratio=1.0, Max Loss=$163.00, IV%=15%

Annotation 2020-06-09 090834MA

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 5 weeks?: Yes (23 days)
  • Probability of OTM > 50%?: Yes (58.2%)
  • Dollar risk set at or below $200.00?: Yes ($163.00)
  • Put/Call ratio below 1.0, or flat, or falling over that last 2-3 weeks?: Yes (flat at 1.0)
  • 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?:
  • 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 (52.1%)
  • Set a GTC trade trigger to close at 35% max gain?: Yes ($0.56)

Trades Currently Cooking

(As of 06/012/2020)

For this week, the only trades currently cooking are those trades opened this week.

Current Trades Closed

(As of 06/12/2020)

MSFT: 185p/182.5p (1 contract) – Open 06/09/20 – Expires 07/02/20 – Max Gain = $84.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=57.1%, ROR=50.3%, PC/Ratio=0.3, Max Loss=$165.00, IV%=18%
At Close: Prob. OTM=77.6%, PC/Ratio=0.3, IV%=20%, 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 6/10/20. This position was opened less than one day from today, so securing 50% of maximum gain is good.

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%
At Close: Prob. OTM=74.9%, PC/Ratio=2.6, IV%=23%, ROR=24.8%

Cost to open: $.66 premium collected * 100 shares * 1 contracts = $66.00
Cost to close: -$.33 premium paid * 100 shares * 1 contracts  = -$33.00
Net profit = $66.00 to open – $33.00 to close = $33.00 – fees
Actual ROR = $33.00 / $133.00= 24.8%

This position was closed via a trade-trigger set at 50% of max gain on 6/10/20. This position was opened less than one week from today, so securing 50% of maximum gain.

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%
At Close: Prob. OTM=73.7%, PC/Ratio=0.7, IV%=15%, ROR=26.2%

Cost to open: $.88 premium collected * 100 shares * 1 contracts = $88.00
Cost to close: -$.51 premium paid * 100 shares * 1 contracts  = -$51.00
Net profit = $88.00 to open – $51.00 to close = $37.00 – fees
Actual ROR = $37.00 / $161.00= 23%

This position was closed via a trade-trigger set at 42.5% of max gain on 6/8/20. This position was opened only one week from today, so securing 50% of maximum gain within 1 week is good.

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Conclusion

“Give us your tired, your poor, your huddled masses yearning to breath free” is the most recognizable phrase associated with the Statue of Liberty. And the last words from George Floyd senseless murder “I can’t breath” makes Lady Liberty’s phrase very hypocritical.

Our country was formed under the expectation that all people were welcome to come and live free. This intended assimilation of diverse cultures has been called the “Great American Experiment.” It now appears that many people do not want to experiment anymore.

IMG_1328[10314]
Political Placation in action

Taking a knee is also getting a rise as a social gesture for an awareness of the unequal social treatment for the Black community. But the optics and the ultimate interpretation of the knee gesture is awful and in itself invites conflict.

First, taking a knee has always been the act of subjugation to another’s control. Subjects keel to Kings to pledge their fielty, Christians kneel to pray in subjugation to God. Muslims kneel plus prostrate themselves before Allah.

Colin Kirkpatrick could not have picked a worse gesture to symbolize Black suppression (although I’m betting that it wasn’t the kneeling he had in mind, just the not standing for the National Anthem was the point). And it was wrong for the rest of the community to adopt that symbol for solidarity. Hopefully, it will be replaced with a more appropriate gesture.

A kneel that cannot be taken back.

We do not have “reeducation camps” like china, North Korea, and Vietnam to force us to conform to one culture. We do not have laws that mandate allegiance to one religion like Sadi Arabia, Iran, and Syria. Our laws are about as a-culture, a-religion, a-political as humanly possible. And it’s the designation of America to be this way. Culture clashes (which includes racism) is the ugly side of a free America. The nature of our freedom invites these clashes – and always will.

If you kneel during the National Anthem and refuse to pledge your allegiance to America because racism is systemic in our culture, then at what point in the future will it be ok to stand and salute. When you do stand and honor the country, will that be admitting that there now no more racism?

I strongly stand in solidarity with the Black community and all those working towards racial equality (for all races) in opportunity and access. And I will always stand and salute a country that gives me the freedom to do so. I wish there were some other outward gestures that I can also participate without conflict with other principles I hold dear.

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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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Contact Me

To contact me or ask me a non-post related question, please use this form. If you want to comment on this post’s topic, please use the “Leave a Reply” box below so it can be attached to the post for future reference. – Thanks

Options Trades by Damocles
Options Trades by Damocles
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