Indecision may or may not be my problem!– Jimmy Buffet
As we wait for a decision in the 2020 Election, this week’s journal entry is going to be thin on trading, but thick on trudging.
Trade Trudging is what I call times like this election week, where my focus is less on learning something savory about Options Trading basics and more about the Geopolitical events that are happening around me. But at the same time, I still what to document this week’s Market Sentiment and any new trades I may open or close.
A Little Political Hacking
Here’s a personal commentary on the 2020 Election’s mail-in ballots issue. I believe all the hoopla was initially triggered mainly by the DNC’s realization over the lack of enthusiasm for Vice President Biden, and not so much about the Democrats unique concern about COVID-19. But it did eventually presented itself as another target of opportunity – another Trump rope-a-dope.
Shortly after the DNC’s National Convention, almost all polls gave a collective yawn for the democratic ticket compared to President Trump’s supporters’ off-the-chart enthusiasm. Seeing that this could be real trouble for a get out to vote effort in November, the Democrats pushed a massive mail-in ballot narrative that also (incidentally) showed off their sensitivity to the COVID crises.
Supporting mail-in ballots for those at risk from the COVID virus was a compassionate idea. And most states have valid mail-in voting systems, but none that can handle the scale to come. (For example, in 2016, the State of Pennsylvania processed around 250,000 mail-in ballots. As of this Friday, Pennsylvania has received over 2.5 million.) The notion of unsolicited bulk mailing of ballots to everyone on the voter’s list (legit or not) was, in some states, an act of desperation by the DNC’s strategists – which may have worked.
The Good Thing About Trump is
He is Not a Politician
President Trump was out early to discourage the DNC’s mail-in balloting ploy. Throwing charges of possible fraud, lost votes, and contested elections. He pushed heavily for in-person voting, and most of his supporters obliged.
As an apparent result, most Republicans waited until Election Day (including in-person early voting) to cast their vote, while most Democrats vote by mail-in.
The Bad Thing About Trump is
He is Not a Politician
But as a sign of political inexperience, Trump’s ranting over the mail-in ballots may have cost him the election.
While Trump may have won every state (except those that are deep blue) on Election Day, Biden may have won every state (except those that are deep red) via mail-in votes. But where the Republicans focused their effort on in-person voting turnout, the Democrats were heavily pushing early voting AND in-person turnout.
It is highly possible that Trump’s stubborn resistance to mail-in voting may have unintentionally disenfranchised many Trump voters. Where the Democrats had several weeks to “get out the votes,” Republicans only had several days. Rookie mistake?
With a Biden President and a Republican Senate, I should expect a tamed stock market for the next couple of years. Hopefully, I can make some consistent peace-time Options Spreads profits.
This Week’s Market Sentiment
(As of 11/2/2020)
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 9-Day SMA popped to 38.02 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.
Leaping above 40%, the VIX took a mightily jump last week. Now being just a few days away from ending this election season nightmare, the market’s general volatilities have gone into overdrive.
With the massive number of mail in ballots sent out, I do not imagine knowing any results by the end of week 45.
This high VIX will yield a higher premium for any new position opened this week.
9-day SMA (all OCC options): ended high at 0.9 from 0.6 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.
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’s Consumer Sentiment Index (CSI) was revised slightly higher to 81.8 at the end of October. Not as high as it was in March when the politics of the pandemic began to cause havoc to the markets.
Now that the elections are over, and there is no more need for the faux-journalist to convince the general public just how things suck, we can hopefully restart believing in ourselves.
I would believe that the market rebound will continue.
DOW = 26,502 – Down 6.5% from 28,336 last week.
S&P 500 = 3,270 – Down 5.6 % from 3,465 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.
Last week, the DOW and S&P took a nosedive of about 6%. I contribute this fully to pre-election jitters. I suspect that Monday (11/2) will experience some wild rides and Wednesday may also be crazy if the election results are not known.
- The stimulus bill is still on the table in one form or another
- The Senate Majority at risk
- Election results
My sentiment for this coming week:
All five of my indicators (S&P 500, VIX, Put/Call Ratio, CSI, and GTS) have mostly flatlined over the past month. And with the markets (COMP, SPX, and IWM) hovering around their all-time highs, there seems to be very little ship-jumping prior to the elections.
The Put/Call Ratios for the major indexes has tilted above 1:0 over the last week suggesting a little duck and cover by the Marketeers, but the over all OCC Options, they stayed below 1. Combine that with the S&P 500 performance last week, I would say that last week was the collective holding of the breath to see whose finance policy will set the tone for the market for the next four years.
Of my five indicators the S&P 500, VIX and Put/Call Ratio are setting the stage for a prolong election. But the longer term S&P 500, Put/Call Ratio, CSI and GTS indictor are suggesting that Trump will earn a second term.
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 11/06/2020)
|Beginning Account Balance||$9,000.00||$2,439.89||$2,439.89|
|Deposits (Div. & Int.)||$38.54||$0.00||$0.00|
|Premiums on Open||$5,655.00||$62.00||$62.00|
|Premiums on Close||-$9,570.00||-$0.00||-$0.00|
|Fees Paid (total)||-$167.42||-$1.03||-$1.03|
|Ending Account Balance||$2,500.86||$2,500.86||$2,500.86|
Realized Profit by Strategy
|Vertical Bull Put Credit Spread||-$3,831.78||$99.97||$99.97|
|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|
Schedule for this Week
Goals for this week: (11/02/20 – 11/06/20) (Week 45)
- Document lessons learned or new thoughts
- Open new positions
- Update Trading Log as trades occurs
- 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)
- 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 27 (<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.
- 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 11/06/2020)
Spread Count Summary:
|Vertical Bull Put Credit Spread||70||1||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|
Current Dollars at Risk:
|Vertical Bull Put Credit Spread||$1,329.00||$438.00||$438.00|
|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|
|Total Dollar Risk||$1,329.00||$438.00||$438.00|
|Max Risk Allowed||$3.000.00||$1,000.00|
New Trades Opened This Week
(11/02/2020 – 11/06/2020)
QQQ: 247.5p/242.5p – Open 11/02/20 – Expires 11/27/20 – Max Gain = $62.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.5%, Head Room=-9.7%, Max Loss=$437.00, IV%=29%
Now: Prob. OTM=90.3%, Head Room=-12.8%, IV%=29%
- Current maximum dollars at risk < $3,000? Yes ($1,329.00)
- Max dollar at risk this position < $1,000? Yes ($437.00)
- Max time to have any dollars at risk < 4 weeks? Yes (24 days)
- Is the long-term trend (four months) bullish? Yes (see chart)
- Is the short-term trajectory of the underlying bullish? No (see chart)
- Is the Put/Call Ratio < 1, (or falling if it is > 1)? No (1.5)
- The current price above 9-Day SMA?: No (see chart)
- 9-Day SMA above 50-Day SMA?: No (see chart)
- Is the Short-strike > 1 SD below the current price? Yes (1SD=262.17)
- Is the short-strikes Prob-OTM > 70%? Yes (80.5%)
- Short-Strike price below the trend channel at expiration?: Yes (see chart)
- The current price within the bottom 1/2 of Trend Channel?: Yes (see chart)
- Is the long-strike at maximum width? Yes (5 strike width)
- Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)
This new QQQ position was mainly a trade of opportunity. This was sold on Election Day and the volatility was through the roof – generating a higher premium. Thus, a lot of the Entry Rules were not followed
The Spread-Width of five was because I am running out of money. With the two positions already opened. I had less than $500 of non-margin committed cash.
Trades Currently Cooking
(As of 11/06/2020)
DIA: 262.5p/252.5p – Open 10/21/20 – Expires 11/13/20 – Max Gain = $109.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.4%, Head Room=-7.1%, Max Loss=$890.00, IV%=22%
Now: Prob. OTM=54.4%, Head Room=-1.0%, IV%=36%
Cost to open: $0.98 premium collected * 100 shares = $98.00
Cost to close: -$0.14 paid * 100 shares = -$14.00
Net Profit= $98.00 to open – $14.00 to close = $84.00 – fees
Actual ROR = $84.00 / $901.00= 9.3%
Trades Closed This Week
(As of 11/06/2020)
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%
Now: Prob. OTM=55.9%, Head Room=-0.9%, IV%=41.2%
At Close: Prob. OTM>99%, Head Room=-7.2%, IV%=29%, ROR= 11.2%
Cost to open: $1.01 premium collected * 100 shares = $101.00
Cost to close: Worthless
Net Profit= $101.00 to open – $0.00 to close = $101.00 – fees
Actual ROR = $101.00 / $898.00= 11.2%
The elections are over, but there are several undecide races. But the bottom of the VIX had drop big time by Nov 4th.
I will feel good to stop getting angry over election politics shenanigan!
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.”
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