We will not go quietly into the night.
We will not vanish without a fight.
We’re going to live on.
We’re going to survive.
Today we celebrate our Independence Day!

– President Whitmore (Movie: Independence Day)

 Commentary

From the unscrupulous and partisan reporting by our national news media” – is what I really wanted to append to the end of the above quote.

There is such an extensive press campaign to make Americans feel as miserable as possible. We have an illegitimate government, there is no hope for a vaccine, and it will take ten years for the economy to recover. Elections are rigged and cannot be trusted, climate change is killing us, and prepare for 25% unemployment. We are racist, we are sexist, we are hateful, we are an imperialistic hell. The only way to be heard is to burn down City Hall. – vote Democrat!

Income for Options Trading

The hyperboles are at a fever pitch, and it’s bumming me out. So I decided to look back over the last 40 years to see if there was ever any time that we were more miserable. I thought that looking into the “Misery Index” would be an excellent place to start.

Just How Miserable Are We?

The Misery Index was an indicator created by economist Arthur Okun of the Johnson Administration. It simply adds the annual inflation rate and the unemployment rate to create an easily understood economic health matrix for the country.

Jimmy Carter successfully touted the Misery Index during his campaign with Gerald Ford. During the last years of Ford’s administration, the index was 12.8%, and that was considered ‘very bad.’

Reagan used the same index against Carter in 1980. In the final year of Carter’s reign, the Misery Index was 18.8%. Reagan’s pressing this index was one of the primary reasons for his election.

So surely, if we look at the Misery Index over the last 3½ years, it must be at least double of that for the Carter days – right?

Below I assembled a table showing what the yearly Misery Index was from Ford through Trump’s first term. And what I see is not surprising, but it does go against the national news media’s narrative.

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Misery Index (covering last 45 years)

Note, the higher the index percentage the more in distress the U.S. economy is.

AdministrationYearInflation
Rate
UnemploymentMisery
Index
Ford19754.9%7.8%12.8%
Ford19766.7%6.4%13.1%
Carter19779.0%6.0%15.0%
Carter197813.3%6.0%19.3%
Carter197912.5%7.2%18.8%
Carter19808.9%8.5%17.4%
Reagan19813.8%10.8%14.8%
Reagan19823.8%8.3%12.1%
Reagan19833.9%7.3%11.2%
Reagan19843.8%7.0%10.8%
Reagan19851.1%6.6%7.7%
Reagan19864.4%5.7%10.1%
Reagan19874.4%5.3%9.7%
Reagan19884.6%5.4%10.0%
Bush19896.1%6.3%12.4%
Bush19903.1%7.3%10.4%
Bush19912.9%7.4%10.3%
Bush19922.7%6.5%9.2%
Clinton19932.7%5.5%8.2%
Clinton19942.5%5.6%8.1%
Clinton19953.3%5.4%8.7%
Clinton19961.7%4.7%6.4%
Clinton19971.6%4.4%6.0%
Clinton19982.7%4.0%6.7%
Clinton19993.4%3.9%7.3%
Clinton20001.6%5.7%7.3%
Bush20012.4%6.0%8.4%
Bush20021.9%5.7%7.6%
Bush20033.3%5.4%8.7%
Bush20043.4%4.9%8.3%
Bush20052.5%4.7%7.2%
Bush20064.1%4.60%8.7%
Bush20070.1%5.00%5.1%
Bush20082.7%7.80%10.5%
Obama20091.5%9.80%11.3%
Obama20103.0%9.10%12.1%
Obama20111.7%8.30%10.0%
Obama20121.5%8.00%9.5%
Obama20130.8%6.60%7.4%
Obama20140.7%5.70%6.4%
Obama20152.1%4.90%7.0%
Obama20162.1%4.70%6.8%
Trump20171.9%4.10%6.0%
Trump20182.3%4.00%6.3%
Trump20190.8%3.60%4.4%
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Whose Administration Was the Most Miserable?

Below is the average Misery Index for the past 7 Administrations:

Carter Administration (4 years) = 15.1% average
Reagan Administration (8 years) = 10.8% average
Bush I Administration (4 years) = 10.6% average
Clinton Administration (8 years) = 7.3% average
Bush II Administration (8 years) = 8.1% average
Obama Administration (8 years) = 8.8% average
Trump Administration (3 years) = 5.6% average

For over the past seven administrations, Carter still holds the top spot with an average of 15.1%, securing his title of the worst economic president during this time.

The new title of the best economy is undeniably granted to Trump’s first term, with the lowest average of 5.6% in the Misery Index. And 2019 had a Misery Index of 4.4% – which is the lowest over the past 45 years.

This year’s (2020) numbers are not in as we are only halfway through the year. The unnecessary COVID-Lockdowns cost many jobs, and the unemployment rate saw a high of over 14%. But as of August of 2020, that number is falling fast, and inflation is still below 1%.

We are BY FAR better off today than in years past – pandemic notwithstanding. As a nation, we are less racist and more equitable than any others. We have more freedom to say the dumbest, stupidest, destructive things than any other country. We are more universally giving, and the vast majority of all are supportive of others.

How miserable is that?

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This Week’s Market Sentiment

(As of 08/17/2020)

This Market Sentiment is as of the start of my trading week. This analysis is typically completed by midday Monday morning, and I will use it to help guide my trading decisions for this week. By the time this journal is published, it will be a week old.

VIX – Broad Market Volatility:

VIX = 9-Day SMA flat at  22.31 from 22.5 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% or below will have an innate tendency to rise.

Income for Options Trading
CBOE Market Volatility Index

Again last week, the VIX seems to have settled into a side-ways movement. Staying above 22%, the Marketeers are still primed to dump their portfolio in short notice.

Remaining above the 15% line, there continues to be a lot of rebalancing between different stocks, or between the markets and cash.

Because there is still a downward trajectory of the VIX, the current market direction is likely to continue.

Put/Call Ratio:

9-day SMA (all OCC options): continued mostly flat at 0.60 from 0.57 last week.

Put Options are frequently used as protections against existing investments falling. When the ratio between Put Options bought versus Call Options bought is 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.

#Options #Trading for #Income
Daily Put/Call Ratio for all OCC Options

The current P/C Ratio is slightly below the 9-Day SMA and has also breached somewhat the upper barrier of the trend-channel. But it is still well below the 1.0 line. Historically, there is no more bottom to this chart, so I expect a sustained side-ways trajectory – unless the Democrats take Washington.

Marketeers are almost buying twice as many Call Options than Puts. This Signals that the majority of us are betting on the market to continue to rise.

Consumer Sentiment Index (CSI):

The consumer Sentiment index hopes to take a broad snapshot of what we all feel to be the direction of the U.S. economy. It measures how consumers feel about their personal financial situation and compares that to what they believe is happening to others throughout the country. The survey contains 50 questions and is conducted to more than 500 people each month.

A low rating is a general dissatisfaction with our current management of U.S. economic policies. This dissatisfaction will imply that something has to change.

A high satisfaction rating suggests approval of the current policy management and implies market stability.

#Options #Trading for #Income

At last look, the CSI continues to stand at 72.8 for this month. This value projects a significant amount of uncertainty in the future of our economy. This indicator is no doubt the source of why most economist still believes that we are economically stimied.

I believe that this indicator will continue to inch up for September and October, but will remain relatively low until after the election.

Market Indexes:

DOW = 27,930 – Flat 0% from 27,931 last week.
S&P 500 = 3,397 – Up 0.7% from 3,373 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.

#Options #Trading for #Income
Daily S&P 500 Index – Four-Months

Money seems to continue to flow back into the Stock Markets. Over the past 6-weeks, the Marketeers who cashed out in the COVID-Crash appears to be pacing their way back in. In a way, this transfer explains why the VIX remains above 20% while the Put/Call Ratio remains low.

The current S&P 500 value remains above the 9-Day SMA and moves steadily along is the upper trend-channel barrier.

Geopolitical Tree-Shakers (GTS):

  • Election year politics continue to exacerbate economy and COVID fears
  • Continued simulated unrest across the country
  • Stalled negotiations over a Stimulus Package
  • Rumors of N-Korea’s Kim Jong Un (near) death
  • Emergency authorization of COVID treatments

Soundly amid the election season, I fully expect all kinds of outrageous news accusations and ridiculous political stunts from both parties. Unless a believable event occurs, I feel that the markets have already baked in political machinations into its value.

My sentiment for this coming week:

Of my five indicators above, the VIX, P/C Ratio, and S&P 500 continue to reinforce each other in a continued Bull trajectory for the general market. Of the other two indicators, CSI and Tree-Shakers, continue to throw up warning flags.

I predict that the CSI and Tree-Shakers will remain in a warning state until after the election. There is way too much effort to manipulate the American sentiment to influence the election.

This week, I will focus on:

  1. Limit the max risk per trade to < $1,000.00
  2. Short Stike Price to be 3% – 4% below the current underlining’s price
  3. Keep the week’s total dollar risk < $1,000.00
  4. Keep the overall dollar risk to be below $3,000
  5. Will focus on mid-term trades: 4-5 weeks
  6. Credit spreads only (need positive cash flow for psychological reasons)
  7. Will consider only Bull Spreads
  8. Set Conditional-Trailing-Stop-Limits
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Profit and Loss Statement

(As of 08/28/2020)

 YearMonthWeek #
 2020Aug35
Beginning Account Balance$9,000.$3,316.67$3,911.42
Deposits (Div. & Int.)$38.44$0.00$0.00
Withdraws (paycheck)-$2,125.24-$250.00-$250.00
Premiums on Open$5,029.00$705.00$105.00
Premiums on Close-$8,503.00-$479.00-$479.00
    
Fees Paid (total)-$156.02-$9.43-$4.18
Ending Account Balance $3,283.24$3,283.24$3,283.24
Total Gain/Loss-$5,716.76-$33.43-$628.00
ROR 6.5%-9.7%
ROC-40.3%  

Realized Profit by Strategy

  Year Month Week #
  2020 Aug 35
Vertical Bull Put Credit Spread -$3,541.30 $121.56 $55.67
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 -$3,790.92 $121.56 $55.67
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Schedule for this Week

Goals for this week: (08/24/20 – 08/28/20) (Week 35)

  • Max dollars at risk (for the week) < $1,000.00
  • Max dollar risk per trade (new trades) = $1,000.00
  • Update Trading Log as trades occurs

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 4 weeks?:
  • Probability of OTM > 60%?:
  • Short-Strike price (Head Room) >= 3.0% below the current price?:
  • Dollar risk per trade <= $1,000.00?:
  • Total dollar risk <= $3,000:
  • Put/Call ratio below 1.5, or flat, or falling over that last 2-3 weeks?:
  • The Trend-Channel is Bullish?:
  • Short-Strike price below the trend channel at expiration?:
  • The current price within the bottom 1/2 of Bull Trend Channel?:
  • The current 1-week or 2-week trajectory bullish?:
  • 9-Day SMA above 50-Day SMA?:
  • The current price above 9-Day SMA?:
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (see screenshot below)

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: Sept 18 (<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.

 

This Week’s Trade Activity

(As of 08/28/2020)

Spread Count Summary:

  Year Month Week #
  2020 Aug 35
Vertical Bull Put Credit Spread 63 6 1
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 82 6 1

Current Dollars at Risk:

  Year Month Week #
  2020 Aug 35
Vertical Bull Put Credit Spread $1,337.00 $1,337.00 $895.00
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 $1,337.00 $1,337.00 $895.00
Max Risk Allowed $3.000.00   $1,000.00
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New Trades Opened This Week

(08/24/2020 – 08/28/2020)

SPY: 333p/323p  – Open 08/26/20 – Expires 09/18/20 – Max Gain = $105.00
(Vertical Bull Put Credit Spread)

At Open: Prob. OTM=75.5%, ROR=11.6%, Head Room=-4.1%, Max Loss=$894.00, IV%=19%

#Options #Trading for #Income

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 4 weeks?: Yes (23 Days)
  • Probability of OTM > 60%?: Yes 75.5%
  • Short-Strike price (Head Room) >= 3.0% below the current price?: Yes (-4.1%)
  • Dollar risk per trade <= $1,000.00?: Yes ($894.00)
  • Total dollar risk <= $3,000: Yes (-$2,013)
  • Put/Call ratio below 1.5, or flat, or falling over that last 2-3 weeks?: Yes (1.3)
  • The Trend-Channel is Bullish?: Yes (See chart)
  • Short-Strike price below the trend channel at expiration?: Yes (See chart)
  • The current price within the bottom 1/2 of Bull Trend Channel?: No (See chart)
  • The current 1-week or 2-week trajectory bullish?: Yes (See chart)
  • 9-Day SMA above 50-Day SMA?: Yes (See chart)
  • The current price above 9-Day SMA?: Yes (See chart)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (see screenshot below)
#Options #Trading for #Income

Trades Currently Cooking

(As of 08/28/2020)

SPY: 324p/319p  – Open 08/13/20 – Expires 09/04/20 – Max Gain = $58.00
(Vertical Bull Put Credit Spread)

At Open: Prob. OTM=77.1%, ROR=12.9%, Head Room=-4.3%, Max Loss=$441.00, IV%=15%
Now: Prob. OTM=94.5%, ROR=10.7%, Head Room=-7.1%, PC/Ratio=1.1, IV%=21%

Trades Closed This Week

(As of 08/28/2020)

MA: 315p/310p  – Open 08/11/20 – Expires 09/04/20 – Max Gain = $112.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=72.0%, ROR=28.7%, Head Room=-4.2%, Max Loss=$387.00, IV%=12%
At Close: Prob. OTM=>97.1%, PC/Ratio=0.5, Head Room=-9.4%, IV%=8%, ROR= 27.9%

Cost to open: $1.12 premium collected * 100 shares * 1 contracts = $112.00
Cost to close: -$0.04 paid * 100 shares = -$4.00
Net Profit= $112.00 to open – $4.00 to close = $108.00 – fees
Actual ROR = $108.00 / $387.00= 27.9%%

This position was closed early (8/26) nine days early. It had already achieved 96% of the max gain, and the $4.00 charge to close this risk early was worth it.

SPY: 315p/306p  – Open 08/03/20 – Expires 08/28/20 – Max Gain = $121.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=73.1%, ROR=15.4%, Head Room=-4.2%, Max Loss=$778.00, IV%=19%
At Close: Prob. OTM=>97.1%, PC/Ratio=1.6, Head Room=-9.4%, IV%=18%, ROR= 15.3%

Cost to open: $1.21 premium collected * 100 shares * 1 contracts = $121.00
Cost to close: -$0.02 paid * 100 shares = -$2.00
Net Profit= $121.00 to open – $2.00 to close = $119.00 – fees
Actual ROR = $119.00 / $778.00= 15.3%

This position was also closed early (8/26) three days early. It had already reached 97% of the max gain. Also, I needed to lower the current dollars at risk to allow for a new position this week.

QQQ: 258p/250pp  – Open 08/05/20 – Expires 08/28/20 – Max Gain = $124.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=72.9%, ROR=18.2%, Head Room=-4.7%, Max Loss=$675.00, IV%=23%
At Close: Prob. OTM=>99.7%, PC/Ratio=2.3, Head Room=-11.3%, IV%=30%, ROR= 17.9%

Cost to open: $1.24 premium collected * 100 shares * 1 contracts = $124.00
Cost to close: $0.00, expired worthless
Net Profit= $124.00 to open – $0.00 to close = $124.00 – fees
Actual ROR = $124.00 / $675.00= 17.9%

UNH: 305p/295p  – Open 08/19/20 – Expires 09/11/20 – Max Gain = $185.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=67.5%, ROR=22.6%, Head Room=-3.3%, Max Loss=$814.00, IV%=12%
At Close: Prob. OTM=>56.1%, PC/Ratio=0.5, Head Room=-1.2%, IV%=16%, ROR= -35.4%

Cost to open: $1.85 premium collected * 100 shares = $185.00
Cost to close: -$4.73 paid * 100 shares = -$473.00
Net Loss = $185.00 to open – $473.00 to close = -$288.00 – fees
Actual ROR = -$288.00 / $814.00= -35.4%

Minutes after I opened this position, it took a turn south that lasted for the past five trading days. This morning, it became ITM by breached the 305 Short-Strike, throwing the CTSL in action. The Mark price then gapped down past the + $ 0.50 Trailing Stop value, which entered the Limit order. The Limit order was executed after the Mark price was +$1.00 and closed this position at $4.73. Once my position was closed for a $288 loss, it jumped back up to a safe $308.

I’m not sure why it settled on a closing price of $4.73 when the Stop Price was $3.53, and the Limit price would have been $4.53. I will speculate that UNH gapped much further down below $4.53, but the $4.53 was the last set price when it gapped back up.

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Conclusion

The UNH spread position that was closed early could be a lesson learned. Individual stocks are going to be much more prone to significant gaps than ETFs. Maybe my watchlist for future spreads should be limited to just ETFs.

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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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