…there is not a liberal America and a conservative America —
there is the United States of America.
There is not a Black America and a White America
and Latino America and Asian America —
there’s the United States of America.

– Barack Obama at 2004 Democratic Convention

 Commentary

Options Income during election

Senatorial candidate Barack Obama stunned political junkies of all sides with a powerful unifying speech during the 2004 Democratic Convention. The picture of America that he painted in this speech, I believe, was the single event that got him elected as president in 2008. The thinking was an Obama presidency would be the great unifier. But something happened

What happened to Obama’s One America?

Obama’s unity message lost its soul when it partnered with the super-partisan machine of Pelosi and Reid. Seizing the opportunity of a rare alignment of all three government branches under one party, the unity agenda was quickly replaced with a long list of progressive programs that required the total shutout of Republicans.

The national angst to the strong-armed Affordable Care Act, including the thumb-your-nose gall of officially nick-naming if #Obamacare created a super partisan government that produce the Tea Party movement and Trump.

Democrats and Republicans are two sides of the same coin.

Our country thrives on the current two-party system. The two are evenly balanced as the “Yin and Yang” that is required for a prosperous society. Every two years, the U.S. citizens will vote to tilt the scale one way or the other as needed. It is the voters who maintain this necessary balance, not the politicians.

The Democratic Party has frequently been described as the Party of the People, and the Republican Party has always been more friendly to businesses. So for one side of the coin to improve America’s quality of life, the other side needs to enhance the economy to provide resources. Both sides are necessary to make America the best country in the world.

Selling Options Spread During an Election Season

During the run-up to a Presidential or Congressional election, there is a lot of campaigning to convince me just how good or bad off I am. It is up to me to sift through the news to see what is rhetorical or factual. But there is one bellwether institution that can help guide me with my Options for Income missionmy fellow Marketeers.

Marketeers are not prognosticators of elections. But historically, if investors believe that a business-friendly party is likely to take/keep power, then they will put new money in the markets before the election, hoping to catch the ride up. On the flip-side, if the likely election winner is business restrictive, cash will flow out of the market until new confidence is gained. I reference back to my earlier journal entry, “Rebooting the US Economy.”

Transitioning from one-party rule to another implies changes in regulations and economic priorities. Keeping the same party in power suggests the status quo will continue. But until the election is over, there is a lot of unknown, fear, and volatility that shakes up the markets.

All these unknowns create uncertainties in the markets, regardless of the election‘s probabilities. These uncertainties create volatility, which generates high premiums for selling Vertical Bull Put Credit Spreads. So being in the Options trading theater at this point can be highly profitable.

However, that same volatility can drastically move the markets in any direction over the slightest geopolitical news, fake or not. So I need to understand that politics will perilously shape my Options Stread strategies over the next two months.

This Week’s Market Sentiment

(As of 08/31/2020)

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  23.5 from 22.3 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.

Making Money from Options Spreads
CBOE Market Volatility Index

For the past 30-days, the VIX stayed mostly flat throughout the political conventions. I did notice that during the Republican convention, the VIX jumped up to 24.5% before settling done to 22.5%.

With an adjusted trend-channel, the current VIX remains within the channel and slightly above the 9-Day SMA. I would expect to see a high VIX through Election Day, and for sometime after that – especially if the Democrats contest the results.

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 0.57 from 0.60 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.

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

The current Put/Call Ratio continues to stay slightly below the 9-Day SMA as it went on a downward trajectory all last week. It appears that the Marketeers went on a stock-buying spree as a result of the Republican convention.

Marketeers continue to be buying almost 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.

United States Consumer Sentiment

The UM’s Consumer Sentiment Index was revised this past week to give August a 74.1 rating from 72.8. This change is also a jump above July’s 72.5, so we are moving in the right direction.

I suspect to see this index adjusting in September as most of the initial doom and gloom prediction during the early stages of the COVID-Lockdown are proven wrong. The better-than-expected employment numbers in July/August and now the better-than-expected personal income and spending report released last Friday demonstrate that the Wall Street number crunchers overshot the bear. JPMorgan and Goldman Sachs are currently revising their third-quarter GDP estimates significantly upwards.

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

Market Indexes:

DOW = 28,654 – Up 2.6% from 27,930 last week.
S&P 500 = 3,508 – Up 3.3% from 3,397 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 during the COVID-Crash appear 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. I adjusted the trend-channel for this week to be a bit more bullish.

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
  • Emergency authorization of COVID vaccine coming soon
  • Better-than-expected economical news.

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.

I’m sure that it is highly coincidental that the long-run violence riots throughout the country are only in Democrat-run states and Democrat-run cities. It seems like they are giving the violence enough oxygen to run as long as possible to show the electorate just how miserable Trump has made them. (Remind me of a kid banging his head against a wall while shouting “see what you are making me do?”)

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

Profit and Loss Statement

(As of 09/04/2020)

YearMonthWeek #
2020Sept36
Beginning Account Balance$9,000.00$3,283.24$3,282.24
Deposits (Div. & Int.)$38.52$0.02$0.02
Withdraws (paycheck)-$2,125.24$0.00$0.00
Premiums on Open$5,277.00$248.00$248.00
Premiums on Close-$8,850.00-$347.00-$347.00
Fees Paid (total)-$158.12-$2.10-$3.15
Ending Account Balance$3,181.11$3,181.11$3,181.11
Total Gain/Loss-$5,470.84-$102.13-$102.13
ROR-3.1%-3.1%
ROC-41.5%

Realized Profit by Strategy

YearMonthWeek #
2020Sept36
Vertical Bull Put Credit Spread-$3,713.45-$172.15-$172.15
Vertical Bear Call Credit Spread-$182.79$0.00$0.00
Vertical Bull Put Debit Spread$0.$0.00$0.00
Vertical Bull Call Debit Spread-$66.83$0.00$0.00
Icon Condors$0.$0.00$0.00
Cover Calls
Total-$3,963.07-$172.15-$172.15

Schedule for this Week

Goals for this week: (08/31/20 – 09/04/20) (Week 36)

  • 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 25 (<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 09/04/2020)

Spread Count Summary:

YearMonthWeek #
2020Sept36
Vertical Bull Put Credit Spread6522
Vertical Bear Call Credit Spread1200
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread700
Iron Condor000
Total8422

Current Dollars at Risk:

YearMonthWeek #
2020Sept36
Vertical Bull Put Credit Spread$1,767.00$872.00$872.00
Vertical Bear Call Credit Spread$0.00$0.00$0.00
Vertical Bull Put Debit Spread$0.00$0.00$0.00
Vertical Bull Call Debit Spread$0.00$0.00$0.00
Iron Condor$0.00$0.00$0.00
Total Dollar Risk$1,767.00$872.00$872.00
Max Risk Allowed$3.000.00$1,000.00

New Trades Opened This Week

(08/31/2020 – 09/04/2020)

DIA: 273p/263p  – Open 09/01/20 – Expires 09/25/20 – Max Gain = $128.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=72.1%, Head Room=-4.3%, Max Loss=$871.00, IV%=21%

Options Income during election

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 4 weeks?: Yes (24 Days)
  • Probability of OTM > 60%?: Yes 72.1%
  • Short-Strike price >= 3.0% below the current price?: Yes (-4.3%)
  • Dollar risk per trade <= $1,000.00?: Yes ($868.00)
  • Total dollar risk <= $3,000: Yes (-$1,742)
  • Put/Call ratio below 1.5 or falling over that last 2-3 weeks?: Yes (0.4)
  • 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?: Yes (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 Income during election

SPY: 336p/326p  – Open 09/01/20 – Expires 09/25/20 – Max Gain = $120.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=73.0%, Head Room=-4.2%, Max Loss=$889.00, IV%=23%

Options Income during election

Entry Rules for Vertical Bull Put Credit Spreads:

  • Expiration date set at <= 4 weeks?: Yes (24 Days)
  • Probability of OTM > 60%?: Yes 73.0%
  • Short-Strike price >= 3.0% below the current price?: Yes (-4.3%)
  • Dollar risk per trade <= $1,000.00?: Yes ($879.00)
  • Total dollar risk <= $3,000: Yes (-$2,621)
  • Put/Call ratio below 1.5 or falling over that last 2-3 weeks?: Yes (1.1)
  • 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 Income during election

Trades Currently Cooking

(As of 09/04/2020)

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%, Head Room=-4.1%, Max Loss=$894.00, IV%=19%
Now: Prob. OTM=80.3%, Head Room=-5.0%, IV%=22%

Trades Closed This Week

(As of 09/04/2020)

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%, Head Room=-4.3%, Max Loss=$441.00, IV%=15%
At Close: Prob. OTM=>99.2%, PC/Ratio=1.4, Head Room=-8.1%, IV%=25%,

Cost to open: $0.58 premium collected * 100 shares * 1 contracts = $58.00
Cost to close: $0.00, expired worthless
Net Profit= $58.00 to open – $0.00 to close = $58.00 – fees
Actual ROR = $58.00 / $441.00= 13.2%

SPY: 336p/326p  – Open 09/01/20 – Expires 09/25/20 – Max Gain = $120.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=73.0%, Head Room=-4.2%, Max Loss=$889.00, IV%=23%
At Close: Prob. OTM< 50%%, PC/Ratio=1.6, Head Room=+1%, IV%=38%, ROR= 27.9%

Cost to open: $1.20 premium collected * 100 shares = $120.00
Cost to close: -$3.47 paid * 100 shares = -$347.00
Net Profit= $120.00 to open – $347.00 to close = -$227.00 – fees
Actual ROR = $227.00 / $889.00= -25.5%

This position was closed three days after opening. On Thursday (9/3), there was a significant market correction that continued through today. The S&P 500 lost 237 points (or 6.6% over two trading days), dropping the price of SPY below the Short-Strike of 336 to 334.9. This drop triggered the conditional order at 336.

The Think-or-Swim trading platform set the Trailing Stop Order at the then-current premium price + $0.15, then a Limit Order for Mark + $.10. I now think that the Stop-Price threshold is much too narrow. My CTSL exit strategy may still need tweaking.

I note that SPY bounced back above 336 three minutes later, fell back below the Short-Strike 40 minutes later, then back to OTM three minutes after that. As of mid-Friday afternoon, SPY has recovered from up to $340.28.

Conclusion

This week was more of a mental vacation than anything noteworthy. The disjointed commentary should be evidence that I am more distracted by the election machinations than any new insights to selling Vertical Bull Put Credit Spreads.

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.”

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