Here’s a toast to the future, A toast to the past,
And a toast to our friends, far and near.
May the future be pleasant; The past a bright dream;
May our friends remain faithful and dear.

 Commentary

This week’s journal entry is lacking any pithy commentary, as other activities dominate my attention. And with most “Trade Trudging” weeks, I need to record “This Week’s Market Sentiment” and any trading activity.

But this week cannot go without acknowledging the 46th President of the United States.

It was a turbulent 2020 and the Presidential campaign even more. With Biden taking office, there will be a sea change of policies and priorities. But thankfully, all will go towards the shores of a better America.

I wish President Biden success in taking our country/society to the next level – just like President Trump so successfully did.

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This Week’s Market Sentiment

(As of 01/18/2021)

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 stayed flat at 23.5 from 23.5 last week. The one-week deviation dropped to 1.0 from last week’s 1.9.

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 – 01/17/2021

Looking at the 4-month trend, the VIX is steadily dropping. This drop is a good sign for those over-caffeinated investors. But recent geopolitical events over the past 6-weeks have changed that trajectory. The current VIX value is now above the 9-Day SMA, and the 9-Day SMA moved above the 50-Day SMA.

The one-week VIX deviation (or the VIX thrashing) for this past week is nearly half of what it was from the week before. This reduction signals that even though there is a rise in Market jitters, the Marketeers agree that the surge is valid.

The current VIX is firmly in the upper half of the trend channel and moving north. I don’t think this will warrant a change in the DEFCON rating until it breaks through the upper resistance line.

The VIX is still relatively high, so premiums for credit spreads should remain high.

Put/Call Ratio:

I’m investigating a different chart for S&P 500 Put/Call Ratios.

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

The Capital mobbing kicked the Put/Call Ratio above 2 for a brief time. But the current value of 1.68 suggests the Marketeers are moving more toward protection than growth.

The Put/Call Ratio for this week has not changed much throughout the last few months. But the rating and range need more evaluation before I start using it to support the DEFCON settings.

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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 17, 2020

The US Consumer Confidence fell last week, following the Georgia Senate runoff, higher than expected jobless claims and less than anticipated Santa sales. But the rate of change does not affect the general sentiment that the economy remains stagnant as the pandemic rages on.

The CSI hasn’t changed much over the past six months. Until we can get the national perception that we have turned the COVID-Corner and we can now visit Grandma, I will assume the future status will stay quo.

There is not a suggestion that the CSI should change the DEFCON rating.

Market Indexes:

DOW (DJX) = 30,814 – Down 0.9% from 31,098 last week. (4 week deviation: 3.3, flat from 3.3 last week)
S&P 500 (SPX) = 3,768 – Down 1.5% from 3,825 last week. (4 week deviation: 39.7 – flat from 39.7 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 dropped below the 9-Day SMA but is well above the 50-Day SMA. This signals that the recent Bull Run is still… running.

For the S&P 500, measuring the price thrashing (deviation) for the past four weeks (currently 39.7) remains relatively flat. The narrowing of the trend will undoubtedly continue as the tail end of the four-month trend channel moves beyond the Nov election.

The lazy bull trajectory does not support any changes to the DEFCON setting.

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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.

  • Biden’s inauguration
  • New 1.9 Trillion Stimulus bill
  • Security for DC for the inauguration
  • What to do about Trump’s Senate trial
  • Iran and N Korea’s missile tests this past Friday
  • Ramping up COVID vaccination distribution via FEMA
  • A closely divided and angry congress will slow conformations

Most of the country is still reeling from the November elections (how it was carried out and Trump’s post-election tantrum). But general consciences have calmed significantly.

My sentiment for this coming week:

The post-election drama continues to cause a significant political uproar but seems to have a minimal reaction from the Marketeers. Of my five indicators, the VIX, CSI, and GTS suggest there remain some worries about our economy, but only marginal. A close eye needs to keep watch.

Put/Call Ratio and the S&P 500 shows a steady trajectory to new highs in the markets. Although I am reevaluating how I should interpret the Put/Call Ratio, I do not feel like the DEFCON should be affected.

Trading Readiness

DEFCON 3

An increasing VIX is nearing 25, and the S&P 500 fell 1.5% last week. Combined, this signals a higher level of jitters from the week prior.

The GTS’ list is shorter but appears to be conflicted with itself, with both good and bad news. This conflict also shows up in the CSI, so here there is a shrug.

The Put/Call Ratio is going under reevaluation, but it does not show any significant changes from the prior four months. So at this point, I’ll call this indicator neutral.

This weeks’ Market Sentiments will be set at DEFCON 3 but only barely.

This week, I will focus on:

  • One 15-Strike-Width spreads.
  • Spread term of 8-weeks or less.
  • Probability of OTM > 80%
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Cash Flow Statement

(As of 01/22/2021)

Year
2021
Month
Jan
Week
#3
Beginning Account Balance$16,000.00$16.000.00$16,301.92
Deposits (Div. & Int.)$0.00$0.00$0.00
Withdraws (paycheck)-$0.00-$0.00-$0.00
Premiums on Open$427.00$427.00$122.00
Premiums on Close-$0.00-$0.00-$0.00
Fees Paid (total)-$4.11-$4.11-$1.03
Ending Account Balance$16,422.89$16,422.89$16,422.89
Total Gain/Loss$422.89$422.89$120.97
ROR2.6%0.7%
ROC2.6%

Realized Profit by Strategy

Year
2021
Month
Jan
Week
#3
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: (01/18/2021 – 01/22/2021) (Week #3)

  • Document lessons learned or new thoughts
  • Open one or two 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 12 (6-8 weeks)
      Note: If there are no Options Chains published for the 8-week expiration, then use the next Options Chain down from 8-weeks (7-weeks, 6-weeks). Beyond 4-weeks expirations, only the monthly chains are available to trade.
  • 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 01/022/2021)

Spread Count Summary:

Year
2021
Month
Jan
Week
#3
Vertical Bull Put Credit Spread441
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Iron Condor000
Total441

Current Dollars at Risk:

Year
2021
Month
Jan
Week
#3
Vertical Bull Put Credit Spread$4,573.$4,573.$1,378.
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$4,573.$4,573.$1,378.
Max Risk Allowed$16,000.00$8,000$2,000.

New Trades Opened This Week

(01/18/2021 – 01/22/2021)

There is no Options Chains available for an expiration of Mar 12 (8 weeks out). The next available Options chain continues to be Feb 26 (6 weeks out).

QQQ: 290p/275p  – Open 01/20/21 – Expires 02/26/21 – Max Gain = $122.00 – Open Price = $322.05
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.3%, Head Room=-10.1%, Max Loss=$1,377.00, ROC 8.8%, 37d Dev = 4.1

Entry Rules for Vertical Bull Put Credit Spreads:

  • New maximum dollars at risk < $8,000? Yes ($4,573.00)
  • Max dollar at risk this position < $2,000? Yes ($1,378.00)
  • Max time to have any dollars at risk < 8 weeks? Yes (37 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)
  • 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=296.24)
  • Is the short-strikes Prob-OTM > 80%? Yes (83.3%)
  • 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 (>= 15)? Yes (15 strike width)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

This week’s DEFCON level is set to 3. So I only focused on one position with a 15-wide strike-width.

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Trades Currently Cooking

(As of 01/22/2021)

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

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

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 01/22/2021)

Nothing to close

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Conclusion

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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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