The shortest possible measure of time.
Standardized on the time between the lights turning green
and the taxi behind you starts beeping his horn.

Definition: A New York Second

 Commentary

What Green Energy Looks Like.

Nearly 30% of all the people who live in Texas had to hunker down and survive the freeze of the century. Close to 4,700,000 people were without power, without water, and without heat for several days – while temperatures dropped to unbelievable lows.

Texas, the epicenter of oil and gas, ran out of energy. And what should never happen – happened.

For the past 20 years, Texas has been rapidly moving to renewable energy. Now, roughly 25% of Texas’ grid energy is provided by wind farms, solar panels, and other renewable energy sources.

Unfortunately, more than half of our renewables dropped offline this week when an unanticipated winter tsunami rolled over the state and dropped the temperatures to near zero. Frozen windmills could not spin, snow-covered solar-panels went dark, circuits froze, and batteries drained.

The state lost a large chunk of our electric capacity just when we were cranking up our thermostats. With skyrocketing energy demand and coal and gas power-plants caped by federal emission limits – our grid capacity crashed. The cascading effect blew relays, and Texas came close to losing the entire grid. And for a close New York Second, Texas was about to achieve the “Green New Deal’s” ultimate goal – zero-carbon emissions.

This week was an epic winter weather event for the state, an epic challenge to the health and safety of many Texans, an epic failure of the state’s grid management from ERCOT (Electric Reliability Council of Texas), and an epic dereliction from the state’s congressional committees charged with oversight. This is also an epic defeat for the argument of moving exclusively to renewable energy.

So what does this have to do with this week’s Options Trading? Mostly nothing, other than spending most of my time this week just trying to survive it.

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This Week’s Market Sentiment

(As of 02/16/2021)

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.

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

VIX: Broad Market Volatility

VIX 9-Day SMA dropped to 22% by the end of last week from 27% the week before. The one-week deviation dropped to 0.6 from last week’s 4.1.

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 - 02/14/2021
CBOE Market Volatility Index – 02/14/2021

The 4-month regression channel for the VIX continues its slow and steady decline from the uncertainty of 2020 and the COVID-CON hysteria. But from Election Day, it has been functional flat as the Marketeers try to assess the new Biden Administration.

The Marketeers mostly ignored the Trump Impeachment trial as non-relevant to the future fiscal policies of the US Government.

The VIX currently is 19.97%, which is a phycological victory as it drops below 20%. But the VIX is still above 15%. And with continued signs of lessoning volatility, the current value is below the 9-Day SMA and the 9-Day SMA has dropped below the 50-Day.

I would initially set this week’s DEFCON (Options Trading Readiness Signal) level to 4.

DEFCON = 4

Put/Call Ratio:

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 – 02/07/2021

The Put/Call Ratio continues to roll flat for several months. I could probably use the same graph for the last two months, as there has been very little to shake the Marketeers’ confidence.

I Still believe the bulk of the Marketeers who cashed out of the markets throughout 2020 have not yet put that back in. But from the Put/Call Ratio for the past several months, no one is too concern about protecting what is already invested.

Maintain DEFCON = 4

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Consumer Sentiment Index (CSI):

The Jan ’21 CSI’s level settled down to 79.0, flat from 80.7 from last month. (ycharts.com)

This Consumer Sentiment Index (CSI), as provided by the University of Michigan. This indicator tracks US consumer sentiment based on surveys on random samples of US households.

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 20, 2020

The US Consumer Confidence continues to lay low for the past couple of months. The Feb ’21 lever dip to 76 from last month’s 79, but no significant events are on the horizon. The general sentiment that the economy remains stagnant as the pandemic rages on.

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

Maintain DEFCON = 4

Market Indexes:

DOW (DJX) = 31,372 – Up 0.7% from 31,148 last week. (4 week deviation: 4.5, up from 3.6 last week)
S&P 500 (SPX) = 3,916 – Up 0.7% from 3,887 last week. (4 week deviation: 63.5 up from 47.8 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 02/14/2021)

The markets re-homed their bullish trajectory from before the Short Squeeze of a couple of weeks ago.

So far, there is nothing to suggest more caution is required for next week.

Maintain DEFCON = 4

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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 the drop of a hat.

  • Trump’s impeachment acquittal was received with the usual bombast and a collective shrug
  • More COVID vaccine has been contracted, and the rollout is… rolling

Currently, there is no earth-shattering Geopolitical news that I can see that could derail a recovering market.

Maintain DEFCON = 4

My sentiment for this coming week:

Trading Readiness Level

DEFCON = 4

This week, I will focus on:

  • Two 10-Strike-Width spread.
  • Spread term of 8-weeks or less.
  • Probability of OTM > 70%
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Cash Flow Statement

(As of 02/19/2021)

Year
2021
Month
Feb
Week
#7
Beginning Account Balance$16,000.00$16,222.98$16,527.25
Deposits (Div. & Int.)$0.12$0.00$0.00
Withdraws (paycheck)-$300.00-$0.00-$0.00
Premiums on Open$1,096.01$568.01$185.00
Premiums on Close-$70.00-$70.00-$0.00
Fees Paid (total)-$15.94-$10.80-$2.06
Ending Account Balance$16,710.19$16,710.19$16,710.19
Total Gain/Loss$710.19$487.21$182.94
ROR3.0%1.1%
ROC4.4%

Realized Profit by Strategy

Year
2021
Month
Feb
Week
#7
Vertical Bull Put Credit Spread$348.81$348.81$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
Margin Interest-$0.53-$0.53$0.00
Total$348.28$348.28$0.00
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Schedule for this Week

Goals for this week: (02/16/2021 – 02/19/2021) (Week #7)

With the Markets being closed this Monday (2/15/21) for Presidents Day, this week will only have five trading days.

  • 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: Apr 9 (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-week 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 02/19/2021)

One notable event this week needs to be documented. On Monday I inadvertently purchased shares of stock in my dedicated Options Trading account that was intended to be in my other buy/hold account. I did not have the cash in my Trading account to cover the accidental transaction and as such triggered my margin to “loan” me the money needed to complete the total cost.

Upon realizing what I did I immediately sold the stock. The result of this error, I was charged .53 for the margin/fee and interest.

Spread Count Summary:

Year
2021
Month
Feb
Week
#7
Vertical Bull Put Credit Spread1162
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total1272

Current Dollars at Risk:

Year
2021
Month
Feb
Week
#7
Vertical Bull Put Credit Spread$6,331.$5,432.$1,815.
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$6,331.$5,432.$1,815.
Max Risk Allowed$16,000.00$8,000$2,000.

New Trades Opened This Week

(02/08/2021 – 02/19/2021)

SPY: 360p/350p  – Open 02/19/21 – Expires 04/01/21 – Max Gain = $85.00 – Open Price = $391.93
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.4%, Head Room=-8.1%, Max Loss=$914.00, ROC 9.2%, 41d Dev = 6.3

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $8,000? Yes ($6,331)
  • Max dollar at risk this week < $2,000? Yes ($1,815)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (41 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)? Yes (1.5 falling)
  • 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=362.90)
  • Is the short-strikes Prob-OTM > 70%? Yes (81.4%)
  • Short-Strike price below the trend channel at expiration?: Yes (see chart)
  • The current price within the bottom 1/2 of Trend Channel?: Yes
  • Is the long-strike at maximum width (>= 15)? Yes (10 strike width)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

QQQ: 305p/295p  – Open 02/16/21 – Expires 04/01/21 – Max Gain = $100.00 – Open Price = $337.49
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=79.7%, Head Room=-9.7%, Max Loss=$900.00, ROC 11%, 43d Dev = 8.5

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $8,000? Yes ($4,517)
  • Max dollar at risk this week < $2,000? Yes ($900)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? 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)? No (1.8 and slightly 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 (1SD=301.37)
  • Is the short-strikes Prob-OTM > 70%? Yes (79.7%)
  • Short-Strike price below the trend channel at expiration?: Yes (see chart)
  • The current price within the bottom 1/2 of Trend Channel?: No
  • Is the long-strike at maximum width (>= 15)? Yes (10 strike width)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)
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Trades Currently Cooking

(As of 02/19/2021)

QQQ: 300p/290p  – Open 02/11/21 – Expires 03/26/21 – Max Gain = $95.00 – Open Price = $333.57
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.1%, Head Room=-10.1%, Max Loss=$904.00, ROC 10.4%, 43d Dev = 7.9
Now: Prob. OTM=85.2%, Head Room=-11.0%, IV%=14%

DIA: 290p/280p  – Open 02/09/21 – Expires 03/26/21 – Max Gain = $93.00 – Open Price = $313.15
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.7%, Head Room=-7.4%, Max Loss=$906.00, ROC 10.2%, 45d Dev = 3.7
Now: Prob. OTM=85.2%, Head Room=-11.0%, IV%=14%

QQQ: 295p/285p  – Open 02/05/21 – Expires 03/19/21 – Max Gain = $88.00 – Open Price = $329.98
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82,5%, Head Room=-10.6%, Max Loss=$911.00, ROC 9.5%, 42d Dev = 6.8
Now: Prob. OTM=85.2%, Head Room=-11.0%, IV%=14%

IWM: 190p/180p  – Open 02/03/21 – Expires 03/19/21 – Max Gain = $107.00 – Open Price = $212.91
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=79.7%, Head Room=-10.8%, Max Loss=$892.00, ROC 11.9%, 44d Dev = 7.24
Now: Prob. OTM=87.8%, Head Room=-14.3%, IV%=25%

QQQ: 290p/280p  – Open 01/26/21 – Expires 03/19/21 – Max Gain = $101.00 – Open Price = $329.04
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.3%, Head Room=-11.9%, Max Loss=$898.00, ROC 11.1%, 52d Dev = 7.0
Now: Prob. OTM=87.6%, Head Room=-12.5%, IV%=18%

Trades Closed This Week

(As of 02/19/2021)

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Conclusion

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The broader markets were mostly lethargic as the week started. But the 1-week trajectory for each of my underlying in my watch list was bullish.

However, the lead up to the Jobs Report (Thursday) kept the Marketeers away from buying, and after the Jobs Report was released Thursday, all my underlying’s trajectories went south. I have no desire to enter a new position as the prices fall, so the one new position I did open on Tuesday may be the only one.

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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