Well, let’s say this Twinkie represents the normal amount of
Dr. Egon Spengler– (Movie: Ghostbusters)
psychokinetic energy in the New York area.
According to this morning’s sample, it would be a Twinkie
thirty-five feet long, weighing approximately six hundred pounds.
Commentary
Media Manipulation
Do you believe in UFO’s, Astral Projections, Mental Telepathy, ESP, Clairvoyance, Spirit Photography, Telekinetic Movement, Full-trance Mediums, the Loch Ness monster, and the theory of Atlantis?
For the next couple of weeks, I have to approach all my market news with a PKE meter. Where psychokinesis is basically the “influence of the mind over matter” – in the runup to the November elections, it’s the “… mind over what matters“. So between now and Nov 3rd, I need to keep a close eye on the Keymaster.
The histrionics coming out of Washington is feeding the crisis-mongers in the media – and they are feeding the Twinkie hanging over the nation. All this is keeping the Marketeers neurotic. This week’s commentary is to review what is destabilizing the markets.
Symmetrical Book Stacking
The Democrats are promising retaliatory-Armageddon if they win Congress and the White House.
- Court Packing (which won’t happen),
- Doing away with legislative filibuster (which won’t happen)
- Prosecuting Trump for COVID management (which can’t happen),
- Removing sitting Justice Gorsuch and Kavanaugh (which can’t happen),
- Doing away with the Electoral College (which can’t happen),
- Pack the Senate by granting statehood to:
- Puerto Rico statehood (unclear if Puerto Ricans what to)
- Washington DC (Constitutionally problematic),
- maybe a few other US Territories (not likely)
The constant threat of deliberate governmental upheaval is throwing the short-term Vertical Bull Put Credit Spreads into uncertainty. This is a good example of how geopolitical tree-shakers are driving my options selections.
What About the Twinkie
The size of the Twinkie is growing exponentially. Between now and Election Day, I would suspect that fear-mongering is going to continue to drive the markets crazy, and add a couple of tons to the Twinkie.
10 Years to Recover!
In June, faux-pundits stated that our economic recovery would take 10 years, it would take four years for a vaccine, and dogs and cats will live together. Many predicted that we will never be the same and that a lockdown America is the “new normal.”
In February of this year, unemployment was 3.5%. By April, it was 14.7%. And as reported last Friday, the unemployment had come back to 7.9%. Although a panic-lockdown caused the 14.7% jump, the bounce back to 7.9% is as remarkable. We are fast-moving back to the old new-normal.
Pandemic Mismanagement!
The COVID-19 death rate was first speculated to reach close to 2.2 million by Oct 2020. It was also assumed the disease would infect nearly 82% of the US population (328.2 million * 81% =) 265.8 million people.
During a town hall on CNN Sept 18, Biden claimed that if Trump would have acted differently, then not a single person would have died. “All the people would still be alive.”
The only mismanagement we did early on was to listen too much to the scientists. I refer back to my post: “The Hitchhiker’s Guide to Options Trading.”
Impeaching Trump a Second Time!
House Speaker Pelosi inferred that Congress would impeach President Trump should he submit a candidate to replace late Justice Ginsberg. (Personally, I would be very interested to understand what the impeachable charges would be…)
Hell hath no fury like a Pelosi scorned.
Commission to Invoke the 25th Amendment!
Recently, Pelosi introduced legislation to create a permanent congressional committee that would determine if a (the) President is fit to lead. This legislation will have to pass the House, Senate and be signed by Trump. This grandstanding move is highly unlikely to pass. But Pelosi’s “trolling” maneuver is obviously a lesson learned from Trump.
Seating Judge Barrett is Court Packing!
Senator Chris Coons (and other Democrats) are characterizing Barrett’s confirmation as “Court Packing.”
“Court-packing” is typically associated with the effort of expanding the number of judges on a court to get the ruling desired. But Senator Coons also extends the definition to court-packing as putting judges with specific ideological bents on the bench. (I always called this court-stacking – something Liberal Demoncrats has done for nearly 50 years when using Roe v. Wade as a litmus test for Supreme Court justices.)
Systemic Racism
The US suffers from systematic racism that only can be addressed with a 13 trillion dollar reparation effort and tearing down all historical monuments. Our police system is racist, corrupt, and should be abolished. Columbus was a criminal, and history needs to be revised.
I’m fuzzy on the whole good/bad thing
The Democrats and pro-democrat media are making the country crazy by adding hundreds of pounds to the Twinkie hanging over the nation. I’m expecting to see the Stay Puff Marshmallow Man soon.
If there’s something strange in your neighborhood,
who you gonna call?
This Week’s Market Sentiment
(As of 10/12/2020)
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 remained mainly flat at 27.1 from 27.6 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.
After briefly topping 30% last Tuesday, the VIX settled a bit at 25% by the end of the week. And irrespective of the wild swings it took this past week, the VIX continues to follow a mostly sideways path towards Election Day.
The VIX continues to scream “THRASHING” for the next several weeks as the Marketeers remains high strung.
Put/Call Ratio:
9-day SMA (all OCC options): ended most flat 0.61 from 0.69 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 Put/Call Ratio continues to be out of sync with the other four indicators. Although the S&P 500 continues to thrash and the VIX is shouting uncertainty. Marketeers seem to have a curious lack of interest in protecting their current portfolio.
I will assume that the majority of the Market’s activity is with realigning assets.
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.
The U-M consumer sentiment for this week remains unchanged from last. But with more states doing more in opening their economy, the better the future optimism grows.
As a long term trajectory, I would believe that the market rebound will continue.
Market Indexes:
DOW = 28,587 – Up 3.2% from 27,683 last week.
S&P 500 = 3,477 – Up 3.8% from 3,348 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.
The S&P 500 current value is above the 9-Day SMA, and the 9-Day SMA is now above the 50-Day SMA. This past three-week trajectory has fallen nicely into the same trend channel that dominates the market before September.
The S&P 500 appears to have taken a foothold back into the bullish trend. With a little more than three weeks left until the election, it seems the Marketeers may be more convinced to an election outcome.
Geopolitical Tree-Shakers (GTS):
- Upcoming Supreme Court confirmation battle
- Threats of revenge Court Packing if Democrats win the election
- Stimulus bill remains uncertain
- Election year politics exacerbating the economy and COVID fears
- Polls for the presidential election seems to be moving Biden’s way
- Questions on how mass-flooding of election ballots affects election integrity.
My sentiment for this coming week:
The S&P 500, VIX, and Put/Call Ratio indicators suggest that the Marketeers are significantly realigning their portfolios. The move appears to be an asset transfer from smaller corporations to larger ones preparing an aggressive Biden tax plan.
The psychokinetic effects from the GTS and a politicalized media have weighed heavily on the market’s stability. So I shall not get too confident in any continuation of a trend.
There still remains no consensus on an Options Strategy.
This week, I will focus on:
- Limit the max risk per trade to < $1,000.00
- Short Stike Price to be > 6% below the current underlining’s price
- Keep the week’s total dollar risk < $1,000.00
- Keep the overall dollar risk to be below $3,000
- Will focus on mid-term trades: 4-5 weeks
- Credit spreads only (need positive cash flow for psychological reasons)
- Will consider only Bull Spreads
- Set alarms
Profit and Loss Statement
(As of 10/16/2020)
| Year 2020 | Month Oct | Week #42 | |
|---|---|---|---|
| Beginning Account Balance | $9,000.00 | $2,418.99 | $2,496.95 |
| Deposits (Div. & Int.) | $38.52 | $0.00 | $0.00 |
| Withdraws (paycheck) | -$2,375.24 | $-0.00 | $-0.00 |
| Premiums on Open | $5,655.00 | $199.00 | $101.00 |
| Premiums on Close | -$9,556.00 | -$18.00 | -$0.00 |
| Fees Paid (total) | -$165.37 | -$3.06 | -$1.02 |
| Ending Account Balance | $2,596.93 | $2,596.93 | $2,596.93 |
| Total Gain/Loss | -$6,403.07 | $177.94 | $99.98 |
| ROR | 7.4% | 4.0% | |
| ROC | -45.2% |
Realized Profit by Strategy
| Year 2020 | Month Oct | Week #42 | |
|---|---|---|---|
| Vertical Bull Put Credit Spread | -$4,013.74 | $158.90 | $0.00 |
| 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 | -$4,263.36 | $158.90 | $0.00 |
Schedule for this Week
Goals for this week: (10/12/20 – 10/16/20) (Week 42)
- Document lessons learned or new thoughts
- Open new positions
- Update Trading Log as trades occurs
Entry Rules for Vertical Bull Put Credit Spreads:
- Current maximum dollars at risk < $3,000? Yes/No ( )
- Max dollar at risk this position < $1,000? Yes/No ( )
- Max time to have any dollars at risk < 4 weeks? Yes/No ( )
- Is the long-term trend (four months) bullish? Yes/No (see chart)
- Is the short-term trajectory of the underlying bullish? Yes/No (see chart)
- Is the Put/Call Ratio < 1, (or falling if it is > 1)? Yes/No ( )
- The current price above 9-Day SMA?: Yes/No (see chart)
- 9-Day SMA above 50-Day SMA?: Yes/No (see chart)
- Is the Short-strike > 1 SD below the current price? Yes/No ( )
- Is the short-strikes Prob-OTM > 70%? Yes/No ( )
- Short-Strike price below trend channel at expiration?: Yes/No (see chart)
- Current price within bottom 1/2 of Trend Channel?: Yes/No (see chart)
- Is the long-strike at maximum width? Yes/No (?? strike width)
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: Nov 6 (<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 10/16/2020)
Spread Count Summary:
| Year 2020 | Month Oct | Week #42 | |
|---|---|---|---|
| Vertical Bull Put Credit Spread | 68 | 2 | 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 | 87 | 2 | 1 |
Current Dollars at Risk:
| Year 2020 | Month Oct | Week #42 | |
|---|---|---|---|
| Vertical Bull Put Credit Spread | $1,801.00 | $1,801.00 | $899.00 |
| 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 | $1,801.00 | $1,801.00 | $899.00 |
| Max Risk Allowed | $3.000.00 | $1,000.00 |
New Trades Opened This Week
(10/12/2020 – 10/16/2020)
QQQ: 267p/257p – Open 10/14/20 – Expires 11/06/20 – Max Gain = $101.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.2%, Head Room=-9.8%, Max Loss=$898.00, IV%=32%
Entry Rules for Vertical Bull Put Credit Spreads:
- Current maximum dollars at risk < $3,000? Yes ($1,801)
- Max dollar at risk this position < $1,000? Yes ($898)
- Max time to have any dollars at risk < 4 weeks? Yes (23 days)
- Is the long-term trend (four months) bullish? Yes (see chart)
- Is the short-term trajectory of the underlying bullish? Yes (see chart)
- Is the Put/Call Ratio < 1, (or falling if it is > 1)? Yes (falling last 3 weeks)
- The current price above 9-Day SMA?: Yes (see chart)
- 9-Day SMA above 50-Day SMA?: Yes (see chart)
- Is the Short-strike > 1 SD below the current price? Yes
- Is the short-strikes Prob-OTM > 70%? Yes (83.2%)
- Short-Strike price below the trend channel at expiration?: Yes (see chart)
- The current price within bottom 1/2 of Trend Channel?: No (see chart)
- Is the long-strike at maximum width? Yes (10 strike width)
Closer to the election is going to make the markets uncertain. This is evident as the VIX still remains near 30%. Any new spreads need to assume a greater chance going south between now and Nov. 3rd.
Trades Currently Cooking
(As of 10/16/2020)
QQQ: 253p/243p – Open 10/06/20 – Expires 10/30/20 – Max Gain = $97.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.7%, Head Room=-9.5%, Max Loss=$901.00, IV%=33%
Trades Closed This Week
(As of 10/16/2020)
Conclusion
From someone who suffers from an uncurbable form of “reference-ites,” the original Ghost Buster movie has been a gold mine for company reports and business missives throughout my corporate career. I’ve tormented countless collogues that earned me an awesome number of eye-rolls and backroom’s groans from Ghostbusters’ trivia.
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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