Our lives aren’t just measured in years,
they’re measured in the lives of the people we touch around us.”

–  Peeta Mellark (Movie: The Hunger Games)

 Commentary

Stepping into the Options Trading arena requires almost as much preparation as the Tributes from the Hunger Games story. Although the ultimate cost is not as severe, the odds of survival are pretty much against me.

As 2020 has shown me, the essential tools that I can bring with me into the 2021 arena are preparation, determination, and the ability to learn from my failures.

Another arena that requires a great deal of preparation is politics.

Political Tributes are as blood-driven as those in the Hunger Games. Survival here also depends on preparation, determination, and the ability to manipulate the odds into your favor. And the ultimate cost can be your very humanity.

Trump Out Maneuvered

One of the good things about Trump is, he is not a politician. Yet, one of the bad things about Trump is, he is not a politician.

At the start of the 2020 election year, the Democrat’s prospect of winning the general elections was at the slim side of the scale. Democrats had no message and no messenger. Muller Report was a huge disappointment, and the Ukraine Impeachment came across as politically-abusive and petty. And the list of Democratic presidential candidates was scary.

On top of all that – Pelosi was pissed!

Even though Trump had a tremendous momentum coming into 2020, the Democratic National Committee pulled a miraculous rabbit out of their hat. How did they do that?

Let the Games Begin!

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President Trump Gave the Democrats Two Gifts

First

Instead of assigning a Czar to oversee the management of the COVID-19 pandemic, Trump (being the egotistical showman that he is) instead decided to take center stage and personally defeat the virus. No doubt, he saw this as an opportunity to show the world his “best in history” leadership skills – a made for TV opportunity. 

Now all the jingoistic journalists and political opposition had to do was to spend the year making the COVID-19 a catastrophe for the country. TV pundits, News Paper’s analyst, and every Democrat running for office exacerbated the COVID-CON to the detriment of the US economy and countless small business jobs. Once enough pain was inflicted on the country, all that was needed was to point to Trump.

Second

Trump’s challenging the validity of mail-in ballots was an unforced error. He encouraged his supporters to bypass the option of mail-in voting, and instead wait to vote on election day. That gave the DNC a huge harvesting advantage by milking “legal votes” from the areas that would best benefit Biden most. The RNC did not apply anywhere near the same strategies in heavily Republican areas, giving the Democrats a significant raw vote advantage.

The Constitution gives every state the absolute right to conduct and manage its elections in a manner they desire. There are very few limitations in the Constitution to level the playing field for national elections. This vagueness means, whatever the state legislature’s rules are for conducting a federal election (within the narrow boundaries of what is in the US Constitution), it will not be contested at any level. If the State’s Legislature is satisfied with how their election was carried out – it’s legal.

As a reference to the legalities of mail-in ballots, consider the 2000 Bush/Gore election. During the post-election legal wranglings, the Florida State Supreme Court ordered special treatment for the “undervote” ballots, and only for three Florida counties (remember the “hanging chads”?). The Florida State House of Representatives objected, stating the order violated the State’s Election Laws’ intention. This objection led to the US Supreme Court’s ruling, overturning Florida’s States Supreme Court, and handing the election to Bush.

From the casting of the first 2020 mail-in ballot until this journal entry, no state legislator from any state has objected to how their state executed the election. That tells me that the execution of mail-in balloting proceed the way the State’s Legislature intended.

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Personal Opinion

I very much liked what President Trump did over the past four years, but I cannot say that I liked how he did it.

President Trump righted many wrongs that have forced many conservatives activists to become more and more politically militaristic. He neutered the “Social Warrior” takeover of the Judicial System, sending that responsibility back to its proper place in the Legislature. ISIS and global terrorism suffered significant setbacks under his administration. He exposed and reset an out-of-control Immigration Policy. And, He took a stance with China that has changed the trajectory of trade and cooperation.

But Trump’s post-election tantrum was, unfortunately, way-too-far over the top. The President of the United States, sworn to uphold the Constitution, was challenging a constitutionally executed election. The two months-long campaign of alleging fraud could not be collaborated by any State’s Legislature or any State’s Judicial system. He stood alone on this path, which led to the first-ever riotous seizure of the US Captial Building.

The well-trained class of Political Tributes sadly and legally outmaneuvered Trump. His lack of political acuities added to his epic ego made him an easy target. I am very much ideologically aligned with Trump, but I’m not sure if what we gain is worth the humanity we lost.

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This Week’s Market Sentiment

(As of 01/11/2021)

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 continued to inch up to 23.5 from 22.9 last week. The one week deviation is steady at 1.9, showing a significant drop from a couple of 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 – 01/10/2021

The rise in the VIX over the past six-weeks looks to be attributed to the escalation of election challenges. Once the election was certified on Jan 6th, there seems to be a VIX sigh of relief.

The VIX is still relatively high, so premiums for credit spreads should remain high. But the trend is moving down. At some time from now, I need to investigate debit spreads.

Put/Call Ratio:

S&P 500 9-day SMA: stays mostly flat at 0.47 from 0.4 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 – 01/10/2021

Even including the US Capital mobbing, the Marketeers continue to shrug off any market-related issues. There seem to be good vibes for 2021

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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: Jan 5, 2020

The US Consumer Confidence took a nice jump since the passing of the second stimulus bill. Stimulus checks are being sent out, and I would expect that would help build additional confidence. The new Senate leadership is also signally a quite $2,000 check soon.

Market Indexes:

DOW (DJX) = 31,098 – Up 1.6% from 30,606 last week. (4 week deviation: 3.3, down from 119 last week)
S&P 500 (SPX) = 3,825 – Up 1.8% from 3,756 last week. (4 week deviation: 39.7 – mostly flat to 26.2 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.

Daily S&P 500 Index – Four-Months (Updated 01/10/2021)

The S&P 500 continues a lazy bull run for over nine weeks.

The current price is above the 9-Day SMA and well above the 50-Day SMA. This signals that the current Bull Run is still… running.

The price-thrashing deviation for both the S&P and DOW continues to drop. I will interpret this as the Marketeers is steady on the current trend.

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Geopolitical Tree-Shakers (GTS):

One way to look at the GTSs is like a lit fuse to a bomb. The fuse can be fast or slow, and the bomb can easily be a dud. But I need to watch this closely as an indicator. The GTS can significantly disrupt all the other indicators at a drop of a hat.

  • Trump went too far with the stollen election mantra, incited a mobbing of the Capital
  • Trump Impeachment 2.0 is gaining steam
  • Trump’s permanent expulsion from Twitter and Facebook
  • Trump seems to be on a melt-down watch
  • Vaccines slow rollout but is gaining speed
  • Biden certification completed

Trumps post-election tantrum is certainly a historic moment for the US. Trump will be remembered as both consequential and decisive. But the Impeachment effort, rather if it is successful or not will not have an affect on future Market performance. Economic policy changes have already been back into the Markets via the election.

My sentiment for this coming week:

The post-election drama has caused a significant political uproar but seems to have a minimal reaction from the Marketeers. Of my five indicators, VIX, Put/Call Ratio, and the S&P 500 shows a steady trajectory to new highs in the markets. The CSI, although still fairly low, is signaling higher confidence in the future.

Even though the GTS has good reasons to be jittery, it does not have that much effect on the current market trajectory – it doesn’t mean it won’t.

This week, I will focus on:

  • Two 10-Strike-Width spreads.

Trading Readiness

DEFCON 4

With the GTS being high, I would technically give this week a DEFCOM 4 but moving to 3.

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Cash Flow Statement

(As of 01/15/2021)

Year
2021
Month
Jan
Week
#2
Beginning Account Balance$16,000.00$16.000.00$16,114.97
Deposits (Div. & Int.)$0.00$0.00$0.00
Withdraws (paycheck)-$0.00-$0.00-$0.00
Premiums on Open$305.00$305.00$189.00.
Premiums on Close-$0.00-$0.00-$0.00
Fees Paid (total)-$3.08-$3.08-$2.06
Ending Account Balance$16,301.92$16,301.92$16,301.92
Total Gain/Loss$301.92$301.92$186.94
ROR1.9%1.2%
ROC1.9%

Realized Profit by Strategy

Year
2021
Month
Jan
Week
#2
Vertical Bull Put Credit Spread$0.00$0.00$0.00
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
Icon Condors$0.00$0.00$0.00
Cover Calls
Total$0.00$0.00$0.00
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Schedule for this Week

Goals for this week: (01/11/2021 – 01/15/2021) (Week #2)

  • Document lessons learned or new thoughts
  • Open just one wide-strike spread
  • 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: Mar 5 (6-8 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.
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This Week’s Trade Activity

(As of 01/015/2021)

Spread Count Summary:

Year
2021
Month
Jan
Week
#2
Vertical Bull Put Credit Spread332
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Iron Condor000
Total332

Current Dollars at Risk:

Year
2021
Month
Jan
Week
#2
Vertical Bull Put Credit Spread$3,195.$3,195.$1,811.
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$3,195.$3,195.$1,811.
Max Risk Allowed$16,000.00$8,000$2,000.

New Trades Opened This Week

(01/11/2021 – 01/15/2021)

SPY: 350p/340p  – Open 01/14/21 – Expires 02/26/21 – Max Gain = $86.00 – Open Price = $380.48
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.3%, Head Room=-8.0%, Max Loss=$912.00, ROC 9.4%, 43d Dev = 4.7

Entry Rules for Vertical Bull Put Credit Spreads:

  • New maximum dollars at risk < $8,000? Yes ($3,195.00)
  • Max dollar at risk this position < $2,000? Yes ($912.00)
  • Max time to have any dollars at risk < 8 weeks? Yes (43 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 (1.0 and falling from 1.8)
  • 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 (1SD=354.21)
  • Is the short-strikes Prob-OTM > 70%? Yes (81.3%)
  • Short-Strike price below the trend channel at expiration?: Yes (see chart)
  • The current price within the bottom 1/2 of Trend Channel?: No (see chart)
  • Is the long-strike at maximum width (>= 10)? Yes (10 strike width)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

QQQ: 280p/270p  – Open 01/12/21 – Expires 02/26/21 – Max Gain = $102.00 – Open Price = $314.52
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.5%, Head Room=-11.0%, Max Loss=$897.00, ROC 11.3%, 44d Dev = 4.8

Entry Rules for Vertical Bull Put Credit Spreads:

  • New maximum dollars at risk < $8,000? Yes ($2,282.00)
  • Max dollar at risk this position < $2,000? Yes ($898.00)
  • Max time to have any dollars at risk < 8 weeks? Yes (45 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 (2.5 and falling from 3.4)
  • 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 (1SD=283.2)
  • Is the short-strikes Prob-OTM > 70%? Yes (81.5%)
  • 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 (>= 10)? Yes (10 strike width)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

This position was open with a term of 45 days. The 45 Day Linear Regression Deviation = 4.8. This appears to mean that over the past 45 days (the expiration date for this position is 45 days in the future), QQQ has been thrashing +/- 4.8 points or an average of ($4.8 / $314.52 =) +/- 1.5% over an equal length of time.

Note, the Linear Regression Deviation for the past four months (120 days) = 14.6. Thus, QQQ has been thrashing +/- 14.6 points or an average of ($14.6 / $314.52 =) +/- 4.6%. This suggests that the QQQ resent trend is showing much less jitters as it has been in the past four months.

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Trades Currently Cooking

(As of 01/15/2021)

IWM: 180p/165p  – Open 01/06/21 – Expires 02/019/21 – Max Gain = $116.00 – Open Price = $202.92
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.2%, Head Room=-11.7%, Max Loss=$1,383.00, ROC 8.3%, 44d Dev = 6.4
Now: Prob. OTM=54.4%, Head Room=-1.0%, IV%=36%

Trades Closed This Week

(As of 01/15/2021)

Nothing to close

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Conclusion

At the closing of this week, there was a significant breach of the Capitol Building on Jan 6. The breach shutdown the certification process and sent all Congressmen into underground shelters. The breach was a response to a Trump rally where Trump incited the notion that Congress was stealing the election. An insurrection was not the apparent goal but more so to disrupt the certification processes.

This event could have many market-related ramifications as the politicians decide how to respond to this.

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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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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

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