The longing you seek is not behind you.
It is in front of you.

Maz Kanata (Movie: Star Wars: Episode VII – The Force Awakens)

 Commentary

At the start of this week, the VIX was 27%. And, market thrashing has crushed most of my short-term Vertical Bull Put Credit Spread positions. My longing for being a Jedi Options-Trade Warrior needs help from the force.

When I examine the VIX chart below, it is easy to concede that the high volatility will be agitating the markets for a while.

I Blame Darth GTS

Technical analysis and fundamentals research on the underlying only goes so far. Some of the time, the biggest market movers are those events I see outside my window. And what I’m looking at right now appears to be the Supreme Court’s confirmation circus, debate debacle, COVID craze, and stimulus tag.

Political crisis-mongers are rolling out bombshell news reports daily. And each bombshell can cause a +/- 2% whipsaw swing in the markets nearly every day. A new position (with the short-strike set at 4% or 5% below the underlying) can easily be dragged deeply underwater within a day or two – only to bounce back to OTM shortly after that. When that happens, Stop-Loss mechanisms will start to work against me.

The focus on this week’s commentary is to discuss the broad-brush effects of how geopolitical activity impacts my selection of this week’s short-term Vertical Bull Put Credit Spreads. And for the next couple of weeks, the geopolitical tree-shakers appears to be Judge Amy Barrett’s Supreme Court confirmation.

Social Warriors on the Bench

The notion that judges on any bench should not only be the impartial arbitrators of the law but also need to fight for a social cause – is ludicrous! Social Warriors should be confined to the Legislature, Executive branch, and public options only.

The closest institution the U.S. has to a dictatorship is a Supreme Court judge with a hell-bent ideological agenda.

Liberals spent decades stacking the Supreme Court to support their progressive agenda. Now that they lost a liberal warrior icon in Justice Ginsberg, the progressive left is going apoplectic over the notion of a conservative court. They do not know what to expect.

Current Crisis –
Amy Coney Barrett’s Conformation

In Judge Barrett’s 2017 conformation hearings to the Seventh Circuit Court of Appeals, Senator Diane Feinstein faulted Amy Barrett’s character qualification because of her Christian beliefs. And at the same time, Senator Feinstein wanted a solid proclamation from Judge Barrett to uphold Roe vs. Wade. Senator Feinstein is more focused on the Social Warrior part of the job.

A Tidbit Perspective of Roe vs. Wade

Regardless of anyone’s stance on Roe vs. Wade, no one should be surprised that one day the Supreme Court would overturn this landmark ruling. It was destined to do so, and Justice Ginsberg gave the most compelling reason why.

During a visit to the University of Chicago Law School, Justice Ginsberg surprised many when she stated that Roe v. Wade was a “faulty decision.”

“…was too far-reaching and too sweeping, and it gave anti-abortion rights activists a very tangible target to rally against“.

– Justice Ruth Bader Ginsburg (May 11, 2013)

America was in the middle of an animated dialog over the subject. It was thought that an abrupt Supreme Court ruling would put an end to the national dialogue. But it had the opposite effect.

Justice Ginsberg wanted a national discussion via various state’s legislation, limited court interactions, and ending with federal legislations knitting together something that most all can agree. But instead, there was a heavy-handed ruling on cutting off all debate that stoked a near 50-year rebellion.

Here are some interesting tidbits about Roe vs. Wade:

• In 1973, Roe was decided with a 6-3 ruling of the Supreme Court. If two judges ruled in the other direction, the discussions would have been sent back to the states.
• If all it took was two judges to decided for Roe, then two judges (or even one) can reverse it.
• In the near 50 years since Roe, there was no attempt to codify the abortion protection as a Constitutional amendment.
• In the near 50 years since Roe, there has been no Federal Law confirming the absolute rights to abortion at anytime and for any reason.
• All 50 states already have laws governing abortions that will go into effect when Roe is overturned. The vast majority of these laws include various degrees of limits.

This Week’s Market Sentiment

(As of 09/28/2020)

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

9-Day SMA slipped to 26.9 from 27.4 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.

I can’t make much of a trend in just one month. But being only five weeks to the election, I’m going to suggests that high volatility will be the norm until after November 3rd.

As of the start of this week, the current VIX is slightly below the 9-Day SMA. But both of these measures are above the 50-Day. With last Friday leaving the VIX at 26%, plus appearing to trend mostly sideways, I’m going to believe that the Marketeers are primed to move big in any direction.

Because it seems the markets are so high strung and on a hair-trigger to bolt over the next several weeks, any new positions I consider entering should the at an ultra-high Prob-OTM (maybe > 8% headroom between the opening price and the short-strike price.)

Put/Call Ratio:

9-day SMA (all OCC options): ended most flat 0.69 from 0.67 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.

The interesting thing about this P/C Ratio chart is that the ratio has remained mostly muted over the past 2-3 months. The lack of coordination with the other four indicators (VIX, S&P 500, CSI, and GTS) hints that instead of choosing Put Options to protect investments, the Marketeers are literally dumping their holding.

For now, I’m going to dismiss the Put/Call Ratio as guidance for new positions.

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.

This chart remains unchanged as of this writing. But I continue to be bullish on the future changes to this index as we realize that the economy is not as bad off as the political-economist wants us to believe.

Market Indexes:

DOW = 27,174 – Down 1.7% from 27,657 last week.
S&P 500 = 3,298 – Down 0.4% from 3,310 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.

Again, I will say that four weeks does not make a trend. But it is hard to argue against the notion that we are in a selloff. In Sept, we have seen a 9.7% drop from this month’s high (9/2) to it low last Wednesday (9/23).

At this point, I’m in the camp that the markets will continue to sell but hopefully will gain some traction.

Geopolitical Tree-Shakers (GTS):

• Upcoming Supreme Court confirmation battle
• Democrats continue to promise armageddon if they take power
• Little hope for a Stimulus bill prior to the election
• Stoking civil unrest across the country
• Election year politics exacerbating the economy and COVID fears
• Narrowing polls for the presidential election makes future uncertain
• This week’s Presidential debate

It is interesting that the national unrest is not over anything concerning the election. The social effort to project that all of the United States is intrinsically racist is fairly moot. A Biden Administration or a Trump second term is not going to change that discussion much.

My sentiment for this coming week:

Of my five indicators above, the CSI and S&P 500 suggests that “in the long-term” we are, and will remain in a bull market trajectory – thus, I have post-election hope. But the VIX and the short-term S&P 500 indicators signify that they are lock-and-loaded to bust any position I open this week at the drop-of-a-hat. And the Put/Call Ratio seems to have gone catatonic.

There are plenty of GTS items to trigger a market reaction.

There is no consensus on an Options Strategy. If I can see a confidence reversal late this week, I may consider a high probability position.
But until then, I recommend again sitting this week out.

This week, I will focus on:

1. Limit the max risk per trade to < $1,000.00
2. Short Stike Price to be > 8% 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 10/02/2020)

Realized Profit by Strategy

Schedule for this Week

Goals for this week: (09/28/20 – 10/02/20) (Week 40)

• 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 > 70%?:
• Short-Strike price < 1-SD below 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: Oct 23 (<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 10/02/2020)

Spread Count Summary:

Current Dollars at Risk:

New Trades Opened This Week

(09/28/2020 – 10/02/2020)

No new positions this week.

Trades Currently Cooking

(As of 10/02/2020)

QQQ: 260p/250p  – Open 09/14/20 – Expires 10/09/20 – Max Gain = $179.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=73.3%, Head Room=-6.0%, Max Loss=$820.00, IV%=21.7%

Trades Closed This Week

(As of 10/02/2020)

Conclusion

This week, I did not open any new positions. Market thrashing remained high, and Friday’s announcement of President Trump testing positive for COVID is going to take time to figure out.

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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