There are two wolves who are always fighting.
One is darkness and despair, the other is light and hope.
The question is: Which wolf wins?
Answer: THE ONE YOU FEED!
– Casey Newton (Movie: Tomorrowland)

Commentary

Medallion from Tomorrowland

Many geopolitical events have been queued up over the years and kept stoked by a crisis-manic media. The prophets of the progressive left have implemented mob-shaming, bias (fake) news, and dogmatic selective rage. All that is needed is the right catalyst to set the fuse blazing, and a significant social-economic tsunami will roll over our country.

Along comes the Coronavirus pandemic, and the Corporate’s COVID-COUP intensifies. We saw it coming, we see it now, and we will let it happen. We are shifting our future economic determination from a “We The People” to the “Corporate US.”

Stop and Rewind and Explain.

First Thing to Note:

The US Government does not produce anything – at all levels. It cannot create wealth, but it needs wealth to survive. Government is something that must grow for its own sake to support people with safety, services, and peace-via-payola. And because it cannot produce the wealth it needs, it grows by consuming taxes – which they take from the people.

Second Thing to Note:

Corporations are required by law to do those things that net the greatest benefits to their stockholders. If it does not, the people driving the corporations are ousted and replaced with people who will. And one reason for this guiding corporate principle is to pay the Government.

Third Thing to Note:

Some basic statistics; 60% of the 330 million Americans make up our workforce. From this 60%, nearly 20% work for the Government, 20% for small/private businesses, and 50% for corporations (nobody seems to know where the remaining 10% work). Even though corporations represent less than 10% of all US businesses, they are an ever-growing dominant force in developing US economic policies.

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What is The Corporate’s COVID-COUP?

The coup accelerates when an event like the Coronavirus provokes the needless lockdowns of millions of small businesses for months. These closures reduce the number of people in the workforce (less taxes received) and increase the number now depending on Governmental services (more wealth required). And quickly, the Government is spending more money than they are receiving. The Government now has to be supplemented by the corporations.

If the Government is financially dependent on the corporations, favorable corporate laws are required. After all, if you strangle the corporation, you will also strangle the Government parasite that depends on it.

There are two wolves that are always fighting.
One is Government, the other is Wall Street.
The question is: Which wolf wins?

Why Is This Topic Important to Options Trading for Income?

The innate nature of the Markets is high volatility. Volatility is what makes money and what loses money. And volatility is mostly driven by news.

If the Feds are thinking about raising interest rates – the Markets can immediately fall based only on the news. If Johnson and Johnson were to announce that they now have the COVID-19 vaccine – JNJ stocks will boom based solely on the story.

It is important to maintain a rational understanding of geopolitical news and how an agenda-driven spin from the press will affect long-term, short-term, or no-term Options Spreads positions. This is why Geopolitical Tree-Shakers is one of the four major indicators that I always keep track of.

Final Take-Away

First, the US Government is 100% dependent on a vibrant economy. They exist solely from the tax money collected from us. So the policies they write and laws they pass must enhance our economic activities – regardless if they are Democrats or Republicans, Liberals or Conservatives.

Second, the social side of the US Economy profoundly needs an active and profitable small-business sector. Without a significant counter-weight to the corporations, we could replace Congress with boardrooms.

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This Week’s Market Sentiment

(As of 06/15/2020)

VIX- Broad Market Volatility:

VIX = 9-Day SMA popped to 29 from 27 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.

CBOE Market Volatility Index

The VIX took a steep climb into the fear side of the chart last Thursday (6/11) when the bulk of the national news was about a climbing of the COVID-19 cases. On that day, the DOW lost nearly 1,800 points.

The spike in the VIX last week will push spread premiums up (good for spread sellers), but at the same time, there will continue to be a lot sphincter-clinching as to what trades will succeed.

Put/Call Ratio:

9-day SMA (all OCC options): stayed mostly flat at .65 from .67 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.

Put/Call Ratio for all OCC Options

The trend shows the Marketeers continue to be reasonably comfortable with their portfolio, even after last Thursday Market meltdown. It is interesting to note that the ratio at the end of the trading Jun 5th week broke through the bottom of the trend channel then shot through the top in the last days of last week.

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):

20200615CSI

May’s new CSI rating at 79.8 does not nearly have the psychological impact as expected. The initial estimate for this setting was about 82. Although this shows that the general sentiment is approving after the COVID-Lockdows, we still have a ways to go.

A lot of market information is being released this week that will undoubtedly impact the CSI. The U.S. Retail Sales report will be released this week and is expected to be positive due to the reopening of the economy.

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

Market Indexes:

DOW = 25,606 – Down 5.5% from 27,111 last week.
S&P 500 = 3,041 – Down 4.8% from 3,194 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.

S&P 500 Index

The Market’s meltdown that happened on Thursday, amazingly enough, was not enough to reverse the gains from the week before. The overall Markets performance during the first week of June with the release of the Jobs Report was abnormal, which could be called exuberance. The near-equal fall during the second week of June could be interpreted as the Marketeers cashing in on last week’s gain.

The S&P 500 broke through the top of the trend channel as well as the 9-Day SMA. But I’m not adjusting the trend-channel this week to see if the longer-term trend settles.

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

Geopolitical tree-shakers are:

  • Continued riots that are breaking out across several US major cities
  • Increase number of COVID-19 following States reopening
  • Saber-rattling from North Korea
  • 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.

We are starting to return to a period of high-volume thrashing that is going to but any short-term trade position at high risk.

For this week:

Three of the four of the indicators above (VIX, S&P 500 and Put/Call Ratios) support the bullish perception, but it is signaling high thrashing for short-term traders. This thrashing will put a huge question mark on any new trades this week. I will limit my purchases to just one or two low risks trades.

This week, I will focus on:

  1. Limit the max risk per trade to <$125.00
  2. Limit the number of new trades and keep the week’s total dollar risk < $250.00
  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 06/19/2020)

 YearMonthWeek #
 2020June25
Beginning Account Balance$9,000.$4,716.26$4,686.50
Deposits (Div. & Int.)$38.44$0.00$0.00
Withdraws (paycheck)-$1,375.24$0.00$0.00
Premiums on Open$2,703.00$661.00$137.00
Premiums on Close-$5,434.00-$539.00-$0.00
    
Fees Paid (total)-$112.80-$18.86-$2.10
Ending Account Balance $4,819.40$4,819.40$4,819.40
Total Gain/Loss-$4,180.60$103.14$132.90
ROR 2.2%2.8%
ROC-31.6%  

Realized Profit by Strategy

  Year Month Week #
  2020 June 25
Vertical Bull Put Credit Spread -$2,911.96 $282.03 $0.
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 -$3,161.58 $282.03 $0.
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Schedule for this Week

Goals for this week: (06/15/20 – 06/19/20) (Week 25)

  • Max technical dollars at risk (for the week) < $250.00
  • Max dollar risk per trade (new trades) = $125.00
  • Update Trading Log as trades occurs

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 4 weeks?:
  • Probability of OTM > 50%?:
  • Dollar risk set at or below $175.00?:
  • 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 10 (<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 06/19/2020)

Spread Count Summary:

  Year Month Week #
  2020 June 25
Vertical Bull Put Credit Spread 42 8 2
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 61 8 2

Current Dollars at Risk:

  Year Month Week #
  2020 June 25
Vertical Bull Put Credit Spread $628. $628. $265.
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 $628. $628. $265.
Max Risk Allowed $1,500.00   $500.00
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New Trades Opened This Week

(06/15/2020 – 06/19/2020)

DIA: 257p/255p (1 contract) – Open 06/19/20 – Expires 07/10/20 – Max Gain = $68.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=50.4%, ROR=51.1%, PC/Ratio=1.8, Max Loss=$131.00, IV%=35%

Annotation 2020-06-19 090441DIA
  • Expiration date set at <= 4 weeks?: Yes (21 days)
  • Probability of OTM > 50%?: Yes (56.2%)
  • Dollar risk set at or below $175.00?: Yes ($131.00)
  • Put/Call ratio below 1.0, or flat, or falling over that last 2-3 weeks?: No (but 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?: No (flat – see chart)
  • 9-Day SMA above 50-Day SMA?: Yes (see chart)
  • ROR > 50%?: Yes (51.1%)
  • Set a GTC trade trigger to close at 35% max gain?: Yes (0.44)

QQQ: 240p/238p (1 contract) – Open 06/17/20 – Expires 07/10/20 – Max Gain = $67.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=56.2%, ROR=50.0%, PC/Ratio=1.5, Max Loss=$132.00, IV%=29%

Annotation 2020-06-17 145758Qqq
  • Expiration date set at <= 4 weeks?: Yes (23 days)
  • Probability of OTM > 50%?: Yes (56.2%)
  • Dollar risk set at or below $175.00?: Yes ($132.00)
  • 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 (50.0%)
  • Set a GTC trade trigger to close at 35% max gain?: Yes (0.44)

Trades Currently Cooking

(As of 06/19/2020)

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%

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%

Current Trades Closed

(As of 06/19/2020)

No positions closed this week.

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Conclusion

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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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