I don’t always have winning trades.
Wait, yes I do,
I’m just early.

– Boss Baby (Movie: The Boss Baby)

 Commentary

Being Thanksgiving week, it seems like a great time to take a power nap. So the commentary this week is a snoozer.

But this is my weekly journal, so I need to record my weekly Market Sentiments and any trading activity completed.

December’s fiscal month starts next week, and I have a lot of administrative tasks to do:

1. I need to wind down all my open positions and reframe from opening anything new that will exist beyond Dec 31. The goal is to zero-out all my equity positions and set my trading account balance to all-cash by the end of the year. 

2. I will need a week or two to conduct a postmortem review on my 2020 effort (which will be depressing). I want to know what went wrong, what went right, and how not to repeat my mistakes.

3. I need to write out my 2021 mission statement for trading options. I need to be sure to focus on what I want to accomplish. Included in this will be expanding my options strategies experience.

4. Lastly, publish my final P&L statement – then go into hiding.

But until then…. ZZZZZZ

This Week’s Market Sentiment

(As of 11/23/2020)

This Market Sentiment Section is typically completed by midday Monday morning. By the time this journal is published, it will be a week old.

In this section, I review five indicators: VIX, S&P 500 Put/Call Ratio, S&P Market movement, Consumer Sentiment Index, and Geopolitical events that could affect the market’s direction. I will use these indicators to help guide my trading decisions for this week.

VIX: Broad Market Volatility

VIX 9-Day SMA leveled off at 23.6 from 26.7 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.

The VIX continued its downward movement over the last week. Even though the election is over, apparently, it is not over until it is over. Many lawsuits are being filed over possible voter fraud, and the world is not yet ready to call it done.

With the investors primed and cocked, we are all waiting until the end of this year. I would think that I will not see a VIX below 15% until after the State of the Union speech next year.

In the meantime, as that the general volatility is settling down, so will the premiums available for new Vertical Bull Put Credit Spreads.

Put/Call Ratio:

9-day SMA (all OCC options): remains low at .05 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.

For the entire run-up to the election, investors did not seem to concern about who won. Even though there was a lot of market movement, there was not too much action in protection.

Investors appeared to have invested mostly in technology as the safe-haven for the lockdown. And as national lockdowns are becoming less likely, most are moving back to other sectors. This is why I am seeing a general hit to my tech investments after a fantastic runup.

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.

There was no change in UM’s Consumer Sentiment report since last week. When it does come out for December, it should show how the population feels about a Biden at the helm.

Market Indexes:

DOW = 29,263 – Down 0.7 % from 29,480 last week.
S&P 500 = 3,558 – Down 0.8% from 3,585 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.

Even after the great news on the COVID Vaccine front, and the FDA clearing Regeneron for COVID treatment, the markets ended mostly flat from last week. The shimmy-shake of the election results is still stoking volatility.

The current S&P 500 value has fallen below the 9-Day SMA. This would be expected when the markets settle a bit after the exuberance during the two-week election. I’m looking at this as a slight correction to put the S&P back on a bullish trajectory.

During the past three months, I see a pattern of exuberance then quick deflation in market value. The S&P 500 bounced back and forth from the Resistance line to the Support line of the trend channel. The current S&P 500 value has broken through the Resistance line (for the third time in four months). So I should be prepared for a market drain.

Geopolitical Tree-Shakers (GTS):

• Voter fraud challenges keeps the Election results on edge
• Pfizer, Moderna and AstraZeneca vaccine results
• Aggressive economic stimulus effort set to expire
• The Senate Majority in question (not necessarily at risk)
• US exiting the the Arms Control Treaty with Russia
• Significant pushback/violence to local lockdown orders
• New COVID cases as Winter approaches

My sentiment for this coming week:

Of my five indicators, the VIX and Put/Call Ratio are relaxing from the past four months’ market tensions. The market movement for the S&P 500 is also settling a bit as it seeks a position in the trend-channel.

The CSI is currently mostly silent, but there is a general consumer concern for the future from the last reading. That is expected considering this year’s COVID-Con and this past election. As President-Elect Biden fills out this transition team and gives hints to his initial cabinet configuration, we consumers will either feel relax or concern.

This year, the GTS (Geopolitical Tree-Shakers) has shown itself to be the most significant of my five indicators. This indicator appears to be the first sign of winning or losing an open spread position.

My activity this week will primarily be limited to my dwindling available funds at risk. But because of the fast run-up over the past month, I’m going to increase my headroom to above 7%

This week, I will focus on:

1. Limit the max risk per trade to < $1,000.00
2. Short-Stike price to be > 7% 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 alarms

Profit and Loss Statement

(As of 11/27/2020)

Realized Profit by Strategy

Schedule for this Week

Goals for this week: (11/23/20 – 11/27/20) (Week 48)

• 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-Strike > 7% 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)

• Set a GTC Conditional Trailing Stop Limit (CTSL): (?)

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: Dec 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 11/20/2020)

Spread Count Summary:

Current Dollars at Risk:

New Trades Opened This Week

(11/22/2020 – 11/27/2020)

This week, I am only opening one new position because of a shortage of available trading cash.

SPY: 338p/328p  – Open 11/27/20 – Expires 12/18/20 – Max Gain = $57.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=86.7%, Head Room=-7.1%, Max Loss=$941.00, IV%=17%

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $3,000? Yes ($1,864)
• Max dollar at risk this position < $1,000? Yes ($942)
• Max time to have any dollars at risk < 4 weeks? Yes (21 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)? No (1.8 and rising)
• 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-Strike > 7% below the current price? Yes (-7.1%)
• Is the short-strikes Prob-OTM > 70%? Yes (86.7%)
• Short-Strike price below trend-channel at expiration?: Yes (see chart)
• Current price within bottom 1/2 of Trend Channel?: No (see chart)
• Is the long-strike at maximum width? Yes/No (10 strike width)

• Set a GTC Conditional Trailing Stop Limit (CTSL): (No)

The only scary part of this position is the current price has broken through the Resistant line of the trend-channel. Because of what appears to be exuberance, I increased the headroom to 7% (SPY will have to fall > 7.5% over the next 21 days to go negative).

But looking back on the last five years, the Thanksgiving to New Years’ market performance has been strongly bullish except for 2018. Therefore, I will assume this year will have a strong finish.

Trades Currently Cooking

(As of 11/13/2020)

QQQ: 270p/260p  – Open 11/19/20 – Expires 12/11/20 – Max Gain = $78.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.3%, Head Room=-7.3%, Max Loss=$921.00, IV%=20%
Now: Prob. OTM=83.7%, Head Room=-7.0%, IV%=21%

Trades Closed This Week

(As of 11/20/2020)

QQQ: 265p/255p  – Open 11/11/20 – Expires 12/04/20 – Max Gain = $91.00
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.2%, Head Room=-7.3%, Max Loss=$908.00, IV%=27%
At Close: Prob. OTM>98.8%, Head Room=-10.1%, IV%=20%, ROR= 13.7%

Cost to open: $0.91 premium collected * 100 shares = $91.00
Cost to close: $0.09 premium paid * 100 shares = $9.00
Net Profit= $91.00 to open – $9.00 to close = $82.00 – fees
Actual ROR = $82.00 / $908.00= 9.0%

I closed this position with 10 days left until expiration. The percent of premium achieve was above 90% so I closed early.

By closing this position at this time, I now have enough cash to open a new position before the end of the week.

Conclusion

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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