The problem is not the problem.
The problem is your attitude about the problem.

Captain Jack Sparrow (Movie: Pirates of the Caribbean)

 Commentary

Jack’s Mission Statement

Achieve my rewards of a life of villainy, larceny, skullduggery, and persnickety-née.

Jack’s Goals

  • Commandeer one of these ships,
  • Pick up a crew in Tortuga,
  • Raid,
  • Pillage,
  • Plunder,
  • And otherwise pilfer my weaselly black guts out.

Captain Jack Sparrow’s Mission Statement was not a problem. And his attitude about his goals was apparent. He sought the adventures of salty sea pirates, and his Mission Statement indeed stated thus.

My 2021 Mission Statement:

Mission Statement

Use to good advantage in 2021 the knowledge I have gained over the past three years from studying ‘how to trade Option Spreads.’ I will; 1) demonstrate that I can make a consistent and livable income dealing only in Option Spreads transaction and; 2) complete 2021 with a trading account value greater than it was at the year’s start.

About my 2021 Mission

My Mission Statement and Goals for 2021 is not a problem either. But since this year’s statement is close to my 2018-2020 missions, my attitude towards 2021 being successful is a little scary.

After being freshly retired, 2018 was the year I was shanghai into the service of notorious Options Traders. I was easy pickings as a wayward nerd looking for my next salty adventure. I knew 2018 would be a money-loser as it was my introduction to the trade.

2019 completed my first year in the open Options Market Sea. Being hauled about the Trader’s ship by the Quartermaster, I learned a lot about the different stations inside the Options Trading Operations. From bow to stern, I tested the waters of Spreads, Greeks, Chains, Rollovers, Assignments, Fees, and the likes. The cost of these valuable lessons was a losing year – and that’s understandable as well.

2020 was supposed to the year my plunder would prove to be profitable. Instead, I was blindsided by many battles and mutinies. I was robbed many times by the Yellow-Journalists, Feds, and Tweets. Dashing my hopes of making it to First Mate came primarily after being keelhauled by the Dread Pirate COVID.

2021 is now my make-or-break year. I must demonstrate that Options Spreads (ALONE) can be self-sustaining. I want to prove that I do not need to have “lots” of money to make a living in Options Trading.

Batten the hatches matties, rough seas ahead!

Advertisements

My 2021 Goals:

Will Turner: This is either madness or brilliance.
Jack Sparrow: It’s remarkable how often those two traits coincide. 

To achieve my 2021 Mission, I will focus on the following goals:

  • Develop a “Trading Style.” (Shooting from the hip is not a trading style.)
  • Keep current on news events that will affect my positions.
  • Operate within a predefined Trading Budget.
  • Pay myself a regular monthly paycheck.
  • Limit transactions to Options Spread only.
  • Maintain detailed documentation and transaction logs.
  • Manage Risks and losing trades effectively (develop an Exit Process).
  • Have discipline and patience.
  • Be an active learner.
  • Be focused on the bottom-line.
  • Never run out of rum – Savvy!

My 2021 Operations Budget

As of the end of this week, I will have two weeks in this 2020 Fiscal Year remaining. All current positions have been closed as of 12/18/20, and no new positions will be open until the first week of 2021.

These next two weeks gives me time to put together a 2021 Operations Budget. Hopefully, I’ll have that completed and recorded by next Friday.

In the meantime…

It’s a Pirate’s life for me, savvy?

Advertisements
Entry Rules for Vertical Bull Put Credit Spreads
The "limiting loss by limiting risk" blunder. One 10-Strike-width Vertical Bull Put Credit Spread has a significant loss-buffer built-in.
Using Excel with ThinkorSwim
Walking through steps of installing thinkorswim on a new laptop and how to get Excel to pull live data …
Exit Rules: Vertical Credit Spreads – Pt 1
Having an Escape Plan (Exit Rules) for my open Vertical Bull Put Credit Spreads is just as critical as …

This Week’s Market Sentiment

(As of 11/30/2020)

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 21.8 from 21.2 from two weeks ago.

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.

CBOE Market Volatility Index – 12/14/2020

After taking a month-long breath-exhale, the VIX flatten out over this past week. This is primarily due to the long-shot Texas court case challenging the election results of four other states. It wasn’t until this past Friday that the Supreme Court rejects the cast (not a ruling) due to lack of standing.

The current VIX (22.4%) took a week long climb and is now above the 9-Day SMA. But still remains below the 50-day SMA and has started to tilt the Trend-Channel downward.

As the VIX continues to drop, the implications could be that rest of the markets are settling into a new longer-term trend.

A falling VIX is also a signal that premiums will be harder to find – since validity drives premiums.

Put/Call Ratio:

9-day SMA (all OCC options): stays flat at .28 from 0.5 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.

Daily Put/Call Ratio for all S&P 500 Constituents Options – 12/14/2020

The Put/Call Ratio for the S&P 500 remained in the “shrug stage.” Implying, for now, the Investors are not too concerned about any significant market dips. But that can change at a drop of a hat (or a tweet).

At the end of last week, the daily Put/Call Ratio popped up the down-trending 9-Day SMA. This may be from a smidgen of concern over the last of the Trump court challenge.

Advertisements

Consumer Sentiment Index (CSI):

Morning Consult surveys around 6,000 U.S. consumers every day on their views regarding the current and future personal financial conditions and business conditions in the country as a whole. The results from those survey interviews are inputted into the Morning Consult Index of Consumer Sentiment (ICS), which rises as consumer confidence increases.

US Consumer Confidence & Sentiment – Morning Consult

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.

Updated: Dec 8, 2020

U.S. consumers lost a little confidence during the first weeks of Dec. According to the narrative of this chart, the rising confidence came mainly from high and middle-income homes.

But with the CSI remaining significantly lower than the pre-pandemic highs, not too many people are convinced that the next few months will be any better. Most of us will hold our breaths for the Vaccines to be distributed and see some verification of the falling infection rate.

Market Indexes:

DOW (DJX) = 30,046 – Up 1.0% from 30,218 last week. (4 week deviation: 255)
S&P 500 (SPX) = 3,663 – Up 1.6% from 3,699 last week. (4 week deviation: 43.16)

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.

Daily S&P 500 Index – Four-Months

The S&P 500 shook off the minor correction of three weeks ago to regain a new all-time high of 3,699. I’m hoping to see a fresh start of a trend-channel.

The current S&P 500 value has broken through the Resistance-Line for the second time over the past two weeks. This implies a continuing of a bullish direction.

The current S&P 500 value is also above the 9-Day SMA, and the 9-Day SMA is above the 50-day. These technical indicators confirm a continuing Bull Market.

Advertisements

Geopolitical Tree-Shakers (GTS):

  • Voter fraud challenges mostly failed. Electors voting today (Dec 14). Election settled.
  • Pfizer vaccines deploying/administering – Maderna’s FDA approval expected this week
  • Catastrophic rise in COVID infections predicted for Christmas (guys! election over!)
  • Stimulus Bill is getting closer
  • A significant hack into the U.S. Treasury via Microsoft Office 365.

The promise of a vaccine, less uncertainty in the government, and some confidence of a Stimulus bill before the end of the year is going to stoke the broad markets as 2020 plays out. But the chronic harping on a catastrophic COVID outbreak plus year-end profit-taking is going to put a lid on the final couple of weeks.

Microsoft Azure Cloud service may be on trial, depending

My sentiment for this coming week:

Of my five indicators, the VIX, Put/Call Ratio, and the S&P 500 agree to a continued bull-market trend. After a significant bounce back from the COVID-Con crash, a calming of the market is an excellent sign for future Options Spreads sales. A record Black Friday will trump most negatives of my GTS.

While waiting for the vaccines to be released, the CSI will be pessimistic for the next few months as we wait for confirmation of a drastically lowering infection rate. But with reporting that the vaccines’ distribution would likely not be completed until Spring 2021, it will be Summer before seeing a noticeable decline. Then the question will be; was it the vaccine? Was it the masks? Or was it the flu letting up during the heat of Summer.

Again, my activity this week will primarily be limited to my dwindling available funds at risk. If I want to open a new trade this week, I will have to close one first.

This week, I will focus on:

I have less than three weeks to go when 2020 will (thankfully) be over. Any new position open at this point will be short-term, low premiums, and subject to the typical end-of-year market thrashing. I have one position remaining open, that will expire worthless at the end of the week.

I will not open any new positions until after the start of the new year. Any premium gains between not and Dec 31 will be minor, not affect my 2020 Performance Report Card, and will be not worth the risk.

Advertisements

Profit and Loss Statement

(As of 12/18/2020)

Year
2020
Month
Dec
Week
#51
Beginning Account Balance$9,000.00$2,461.76$2,458.75
Deposits (Div. & Int.)$38.54$0.00$0.00
Withdraws (paycheck)-$2,875.24$0.00$0.00
Premiums on Open$6,053.00$0.00$0.00
Premiums on Close-$9,581.00-$2.00-$0.00
Fees Paid (total)-$173.55-$1.02-$0.00
Ending Account Balance$2,458.75$2,458.75$2,458.75
Total Gain/Loss-$6,541.25-$3.02$0.00
ROR-0.1%0.0%
ROC-41.2%

Realized Profit by Strategy

Year
2020
Month
Dec
Week
#51
Vertical Bull Put Credit Spread-$3,454.95$130.94$56.98
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-$3,704.57$130.94$56.98
Advertisements

Schedule for this Week

Goals for this week: (12/014/20 – 12/18/20) (Week 51)

  • Document lessons learned or new thoughts
  • No new positions this week
  • Update Trading Log as trades occurs

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 31 (<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.
Advertisements

This Week’s Trade Activity

(As of 12/18/2020)

Spread Count Summary:

Year
2020
Month
Dec
Week
#51
Vertical Bull Put Credit Spread7300
Vertical Bear Call Credit Spread1200
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread700
Iron Condor000
Total9200

Current Dollars at Risk:

Year
2020
Month
Dec
Week
#51
Vertical Bull Put Credit Spread$0.$0.$0.
Vertical Bear Call Credit Spread$0.0.$0.
Vertical Bull Put Debit Spread$0.$0.$0.
Vertical Bull Call Debit Spread$0.$0.$0.
Iron Condor$0.$0.$0.
Total Dollar Risk$0.$0.$0.
Max Risk Allowed$3.000.00$1,000.

At the closing of this journal entry, I have not positions at risk

New Trades Opened This Week

(12/7/2020 – 12/11/2020)

No new positions were opened this week. Allowing all open positions to close and setting the trading account to cash only.

Advertisements

Trades Currently Cooking

(As of 12/18/2020)

Empty Options Spread inventory. Nothing is cooking

Trades Closed This Week

(As of 12/18/2020)

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%
At Close: Prob. OTM>99.4%, Head Room=-8.3%, IV%=18%, ROR= 6.2%

Cost to open: $0.58 premium collected * 100 shares = $58.00
Cost to close: Expired worthless
Net Profit= $58.00 to open – $0.00 to close = $58.00 – fees
Actual ROR = $58.00 / $941.00= 6.2%

As the last Option Spread transaction of 2020, this position was allowed to expire worthless on 12/18/20.

Advertisements

Conclusion

This week closes all my open Options Spread positions for the year. I also closed all my tallies and logs.

I started 2020 with a operations budget of ($9,000 – $3,000 anticipated year of salaries) $6,000 to trade in Options Spreads. The year-end balance of my trading account = $2,208.75. So my activity of buying/selling Options Spread for 2020 yielded a ($2,208.75 – $6,000) -$3,791.25 net loss. Or ($2,208.75 / $6,000.00) -36.8%.

If I had put that $6,000 in a SPY ETF on 01/01/2020, by 12/18/2020, that ETF would have been worth $6,882.00. That is a delta difference of $4,673.24.

Advertisements

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.”

Advertisements

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

#OptionsTrades by Damocles
Options Trades by Damocles