People with ropes around their necks,
don’t always hang.

-Angel Eyes (Movie: The Good, The Bad and The Ugly)

The subject for this week’s commentary is to examine the Good, the Bad, and the Ugly of Short-Strike assignments for Vertical Bull Put Credit Spreads.

Commentary

Lee Van Cleef (Angel Eyes)

During the last ten days, Tech stocks fell to “correction” territory (a drop of 10% or more from the most recent high). The ETF/QQQ (one of my goto spread underlying assets) dropped over 10.9% in just a few days, and it temporarily threw the Short leg of two of my working positions into ITM (In-The-Money).

Even though these two endangered QQQ Vertical Bull Put Credit Spread still have a few weeks to expiration, going through several of these ITM flags last year set off my sphincter-clenching alarm. I need to be aware of what can happen and what my options are to respond. I don’t want what to happened to my account last year to happen again this year.

My Short-Strike Went ITM – Now What?

It is never good news when the Short Strike of my Vertical Bull Put Credit Spreads fall ITM. That means that my Spreads’ underlying asset price has fallen significantly since the position was opened, and now they are in danger of becoming losing positions.

I do not want to make a knee-jerk reaction, so the first thing to do is to review how my spreads work –

Options Contracts

Buying or selling Options requires me to enter into a contractual agreement with my broker. One clause of that agreement is to acknowledge that Options are managed in 100 share lots. Thus, when I sell one Put contract, I am contractually binding myself to buy 100 shares of the underlying at a predetermined price (the “Strike Price”), should my broker demand.

Additionally, if due to an assignment and I am required to buy 100 shares of the underlying asset, and if I do not have enough cash in my account, my broker can indiscriminately sell any funds I have to cover the cost.

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Short vs Long Strikes

When I open a new Vertical Bull Put Credit Spread, I am entering a position that includes two different put-options transactions – a Short Put and a Long Put.

  1. The Short: I will sell one put option contract that will become my Short leg (short because I am selling an option that I do not own, so I am literally short that contract).
  2. The Long: At the same time, I will buy one other put contract that will become my Long leg (long because I will own that contract and I can do with it as I want for as long as I want).

Other Players (Options-Verse)

For me to enter into this spread, someone else within the Options-verse will have to buy a put with the same configuration as I want to sell. Likewise, someone will have to sell the same put configuration that I want to buy. Those “someones” don’t need to be the same someones.

The point to make is the buy and sell transaction between two separate people does not create a connected pair (someone did not buy my put, but rather two puts with the same configuration were both bought and sold at the same time.) Thus, the fate of my Vertical Bull Put Credit Spread is NOT beholden to a specific individual.

All options transactions are rolled up from the brokers to the “Options Clearing Corporation (OCC)” – the arbiter of the Options-Verse.

Long Strike’s Obligations

My buying a put option does not obligate me at all. I already paid for it so technically, my part is done. I can sell it when I want, and I can exercise it if ITM or I can keep it until the contract expires – all my options.

Short Strike’s Obligation

On the other hand, if I sell a put option, it comes with some obligations on my part. The most significant part of this obligation is that if the underlying asset for my Short-Put falls enough to become ITM, then I am accountable to my broker of honor the sell-contract agreement. That agreement states that if my broker “chooses,” they can demand that I buy the 100 shares of the underlying at the agreed price. Or, my broker can also wait until a later time to make the assignment call. Or maybe not make the call at all.

But if the Option contract expires with the Short option ITM, then the assignment will be automatic and unforgiving.

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The Ugly

Just because my pre-expired option contract went ITM does not mean it will be assigned.

Early Assignment

If my put option contract has not yet expired, but the underlying asset’s price falls below the Short-Strike price, then I am in danger of assignment. But to be assigned, certain events need to happen:

  • Someone within the Options-Verse who owns (bought) a matching put option will need to initiate his right to exercise his option. His broker will not hesitate to honor his request by:
    1. Borrow money from his account’s margin
    2. Buy 100 shares of the underlying asset on his behave from his broker’s inventory at the current asset price
    3. Sell 100 shares of the assets back to his broker at the contractual put option price (Strike Price)
    4. Payback the money borrowed from his margin account (the account owner keeps the difference)
    5. Voids/removes the exercised put option contract from his account
    6. Notify the OCC of the exercising transaction
  • Through an equitable selection process, the OCC (Options Clearing Corporation) will determine which brokerage firms will be responsible for completing the assignment.
  • If the OCC selects my brokerage firm, it will have a standardized lottery process to determine how the assignment will be allocated across all accounts. If I am unlucky enough to have my account picked, on my behave my broker will:
    1. Borrow money from my account’s margin
    2. Buy 100 shares of the underlying from my broker’s inventory at the contractual put option price (the Strike Price)
    3. Sell 100 shares of the underlying back to my broker at the contractual put option price current asset price 
    4. Payback the money borrowed from my margin account from the cash in my trading account
    5. Removes the assigned put option from my account
    6. Notify the OCC of the assignment transaction.

Note: There is a “Same Day Substitution” rule for the brokers that will exempt the margin interest charges if the buy/sell transaction happens the same day.

  • The OCC with finally settle the transaction differences between the brokers.

For my pre-expired option contract to be assigned, I will have to be unlucky enough to have my broker selected to fulfill the assignment and have my account randomly chosen by my broker. It does happen, but not always.

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The Bad

What is not random is having my short option be ITM at expiration.

Assigned at Expiration

If the contract expires one penny or more ITM, then the same exercise/assign process outline above will also happen, but there is no broker selection or random picking of an account.

The Good

Spread Traders who have the Short-Strike assigned,
don’t always lose.

One lesson that I learned last year is the wider strike-width that I constructed in my Vertical Bull Put Credit Spread, the more loss-tolerant my position will be. (I refer to a previous post, “Wide Strike Widths for Options Spreads.”)

My maximum money risk on any Vertical Bull Put Credit Spread is the dollar difference between the Short Strike and the Long Strike time 100 (one options contract assumes 100 shares). The actual price of the underlying asset only has a marginal effect on my overall risk.

If I have a spread position where the short option is ITM at expiration (and thus assigned), then what will be subtracted from my cash account is the option’s short strike price – the asset’s current price.

One Strike Width

Reference Vertical Bull Put Credit Spread position
DIA: 280p/279p; Open 03/10/21; Expires 04/16/21; Max Gain=$13.00; Max Loss=$87
Assumed the DIA price at market close on 4/16 = $279.87

$279.87 is 13 cents below $280 at expiration, so this short option will be assigned. I will have to buy 100 shares of DIA at $280.00 then sell it back to my broker for $279.87. The cost to my account will be ($279.87 * 100 = $27,987) – ($280.00 * 100 = $28,000) = -$13.00. Since I collected $13.00 when I open the spread, this will be a break-even transaction.

So technically, if DIA closes higher than $279.87 at expiration, then even though it will be assigned, I still made a profit.

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15 Strike Width

Reference Vertical Bull Put Credit Spread position:
DIA: 280p/265p; Open 03/10/21; Expires 04/16/21; Max Gain=$160.00; Max Loss=$1,340
Assumed DIA price at market close on 4/16 = $278.40

$278.40 is $1.60 below $280 at expiration, so this short option will be assigned. I will have to buy 100 shares of DIA at $280.00 then sell it back to my broker for $278.40. The cost to my account will be ($278.40 * 100 = $27,840) – ($280.00 * 100 = $28,000) = -$160.00. Since I collected $160.00 when I open the spread, this will be a break-even transaction.

What’s the Difference

The one strike width position only has a 13 cents cushion. Should DIA close down below $279.87, then this position falls in the losing column. On the other hand, the 15 strike width position has a $1.60 cushion. DIA can fall to $278.41, and I still make money.

The difference gives me ($1.60 – $0.13 = $1.47 / 280 =) .525% more opportunity to be a winner. (I’ll take it!)

About this Tech Correction

Corrections are a normal part of the ebb and flow of a bull Stock Market. Historically, the market will recover from corrections and move on to new highs. I will look at corrections as the blowing off the froth from a newly poured glass of beer – then add a little more brew to top-off the glass.

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This Week’s Market Sentiment

(As of 03/8/2021)

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 stayed flat at 25% by the end of last week, from 24% the week before. The one-week deviation was +/- 1.97 percentage points (thrashed 8% of the current 24.66%) and ended up pretty much where the week began.

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 – 03/07/2021

The 1-month Regression Channel for the VIX reversed its trajectory to suggest more volatility may come from the unsureness of rising interest/inflation rates. With the added news of Treasury bonds now on the rise, last week’s market thrashing was a good illustration.

The VIX currently is 25%, and has dropped below the 9-Day SMA, suggesting improvement. But the 9-Day is still above the 50-Day SMA. In the last two days of last week, the VIX fell nearly 4%, indicating a calming.

Since the VIX continues to hover above 15, flew past the channel’s Resistance line, and the one-month trajectory is moving north, it would seem the Marketeers are at an elevated rate of jitters. I would initially set this week’s DEFCON (Options Trading Readiness Signal) level to 3. Let’s see if the other indicators will change this level.

DEFCON = 3

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.

S&P 500 Put/Call Ratio – as of 03/07/21

The interest shock of the past couple of weeks set the Marketeers into a CYA mode as the Put/Call Ratio dipped a little from 0.63 last week to 0.56. This reinforces the notion of market jitters have continued through last week and supports the current DEFCON setting. The telling question will be if this continues to rise on Monday/Tuesday of this coming week.

The ratio being above 0.56 is not a butt-clenching event, but it does support the DEFCON level 3 from the VIX section.

Maintain DEFCON = 3

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Consumer Sentiment Index (CSI):

As of Feb, 26 ’21 CSI’s level stayed mostly lower at 76.8. (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: 03/07/21

The US Consumer Confidence index was unchanged from last week’s chart. The general sentiment that the economy remains stagnant as the pandemic starts to wind down, and all eyes are on Washington to see how they will proceed.

This index lever reinforces that current DEFCON level.

Maintain DEFCON = 3

Market Indexes:

DOW (DJX) = 31,496 – Up 1.8% from 30,932 last week. (4 week deviation: 2.2, down from 4.8 last week)
S&P 500 (SPX) = 3,842 – Up 0.8 % from 3,811 last week. (4 week deviation: 45.8 down from 58.2 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 03/07/2021)

The S&P 500 continued the downturn from the week and briefly falling below the Trend-Channel’s resistance line before returning. Also, dropping below the 50-SMA for a short while is confirming the high level of jitteriness.

Market Thrashing

4-Week Thrashing of DJX = +/- 2.2 points or < 0.1% of the market’s volume. Flat from < 0.1% last week.

4-Week Thrashing of SPX = +/- 48.8 points or 1.2% of the market’s volume. A slight calming from 1.5% last week.

The 4-Week thrashing ratios disguises the knee-jerk reaction over the past ten days, where both the S&P and DOW continue to see some hefty swings.

Even as this interest rate causing the Marketeers to pull back at the end, I’m inclined to think of this as a market adjustment to what is inevitably coming. I believe that we are on a bullish track yet rough seas ahead.

So far, all indicators are signaling caution ahead.

Maintain DEFCON = 3

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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.

  • Texas and Mississippi are dropping draconian COVID restrictions
  • Increase vaccines becoming available
  • Becoming hyper-aware of the inevitable rising of interest/inflation rates
  • $1.9B Stimulus Bill passed the Senate this week – likely to pass House this coming week
  • Tech Stocks brushes with Correction Territory this past Friday
  • The 10-Year Treasury Notes will go on auction this Thursday

Rebuilding the decimated small-business sector will raise the interest rates – as supply-and-demand dictates. And rising interest rates are always a competitor to stock as many Marketeers start selling stocks and buying bonds. But this kind of shift in the equity markets has always been quickly absorbed and market adjustments always rebound.

The passing of the enormous Stimulus Bill should have a short-term counter effect to the market’s slippage. But there was nothing in the bill that bolstered the SBA cash inventory, assuring enough money can be borrowed without increasing competition for those available funds.

The Tech Sectors, which was on a tear for the past year, is being hit particularly hard from inflation fears. QQQ has fallen 9.5% from its recent high of 336 in mid February. But this beating seems to be localized in the Tech Sector and not the broader markets (although it seems to be pulling them down).

Maintain DEFCON = 3

My sentiment for this coming week:

There is a general contraction in economic and political concerns at the moment. Although the CSI indicator is being a little blind to the environment, a sense of growth for the US economy is evident. And this growth will inevitably raise interest rates, and inflation will follow – but not all this week.

Over the past ten days, the market restrictions should level off as the Marketeers adjust to higher interest rates.

We are definitely not at DEFCON 2’s door but solidly at DEFCON 3.

Trading Readiness Level

DEFCON = 3

This week, I will focus on:

QQQ may now provide an opportunity for a higher premium. AAPL, MSFT, AMZN, and TSLA make up a third of QQQ’s assets. And since all these companies are mega-money-makers, I don’t see this correction to be anything else than taking profits on an outstanding last 12 months.

  • One 15-Strike-Width spread mid to late week. If the Marketeers are pointing to a rebound, I may go for one 15-Strike-Widths and one 10-Strike-Width spreads. This choice will violate my max risk for the week.
  • Spread term of 8-weeks or less.
  • Probability of OTM > 80%

If the underlings for all my ETFs on the Watch-List continue to retreat during the week, I will delay opening new positions until late in the week.

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Cash Flow Statement

(As of 03/12/2021)

Year
2021
Month
Mar
Week
#10
Beginning Account Balance$16,000.00$16,486.26$16,587.24
Deposits (Div. & Int.)$0.23$0.00$0.00
Withdraws (paycheck)-$600.00-$0.00-$0.00
Premiums on Open$1,545.01$350.00$248.00
Premiums on Close-$91.00-$12.00-$12.00
Fees Paid (total)-$21.04-$4.08-$3.06
Ending Account Balance$16,820.18$16,820.18$16,820.18
Total Gain/Loss$820.18$333.92$232.94
ROR2.0%1.4%
ROC5.1%

Realized Profit by Strategy

Year
2021
Month
Mar
Week
#10
Vertical Bull Put Credit Spread$511.71$78.95$78.95
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$0.00$0.00
Total$511.18$78.95$78.95
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Schedule for this Week

Goals for this week: (03/08/2021 – 03/12/2021) (Week #10)

  • 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 23 (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 03/12/2021)

Spread Count Summary:

Year
2021
Month
Mar
Week
#10
Vertical Bull Put Credit Spread1532
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total1632

Current Dollars at Risk:

Year
2021
Month
Mar
Week
#10
Vertical Bull Put Credit Spread$8,582.$3,150.$2,252.
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$8,582.$3,150.$2,252.
Max Risk Allowed$16,000.00$8,000$2,000.

I deliberately over shot my weekly max dollar risk limit by $252. Coming off a two-week Correction cycle, I am feeling that this is taking advantage of a depressed market as it rebounds. We’ll see if I’m right.

New Trades Opened This Week

(03/08/2021 – 03/12/2021)

IWM: 205p/195p  – Open 03/11/21 – Expires 04/23/21 – Max Gain = $103.00 – Open Price = $230.45
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.5%, Head Room=-11.4%, Max Loss=$896.00, ROC 11.4%, 43d Dev = 6.5

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($9,489)
  • Max dollar at risk this week < $2,000? No ($2,252)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (43 days)
  • Long-term trend (four months) bullish? Yes (see chart)
  • Short-term trajectory of the underlying bullish? Yes (see chart)
  • Put/Call Ratio < 1, (or falling if it is > 1)? Yes (1.5 falling from 3.7)
  • Current price above 9-Day SMA?: Yes (see chart)
  • 9-Day SMA above 50-Day SMA?: Yes (see chart)
  • Short-strike < 1 SD below the current price? Yes (1SD=206.70)
  • Short-strikes Prob-OTM > 80%? Yes (80.5%)
  • Short-Strike price below the trend channel at expiration?: Yes (see chart)
  • Current price within the bottom 1/2 of Trend Channel?: Yes
  • Long-strike at maximum width (<= 15)? Yes (10 strike width)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

This new position violates my maximum dollar risk for the week rule. But the markets are recovering from a Tech Correction, the reported Inflation rate was 1.2% as expected, the 10-Year Treasury Note auction this past Wednesday set interest rates lower than expected, and Congress passed the $1.9T Stimulus Bill. All these actions signal a market bump that should keep this week’s new position OTM (fingers cross).

QQQ: 270p/255p  – Open 03/08/21 – Expires 04/23/21 – Max Gain = $145.00 – Open Price = $308.79
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.7%, Head Room=-12.5%, Max Loss=$1,354.00, ROC 10.6%, 46d Dev = 8.9

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($8,592)
  • Max dollar at risk this week < $2,000? Yes ($1,355)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (44 days)
  • Long-term trend (four months) bullish? Yes (see chart)
  • Short-term trajectory of the underlying bullish? No (see chart)
  • Put/Call Ratio < 1, (or falling if it is > 1)? Yes (1.2 falling)
  • Current price above 9-Day SMA?: No (see chart)
  • 9-Day SMA above 50-Day SMA?: No (see chart)
  • Short-strike < 1 SD below the current price? Yes (1SD=271)
  • Short-strikes Prob-OTM > 80%? Yes (81.7%)
  • Short-Strike price below the trend channel at expiration?: Yes (see chart)
  • Current price within the bottom 1/2 of Trend Channel?: No
  • Long-strike at maximum width (<= 15)? Yes (15 strike width)
  • Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

This is a high risk position since it violates some of my most strictest rules. But I opened this for these reasons:

  • QQQ has already fallen into correction territory, but SPY, DIA and IWM are still moving up. This as been a Tech Sector only correction. Since the Techs have had a banner year, I’m betting that this is just the Marketeers cashing in on some good profits.
  • A third of QQQ’s assets are made up of AAPL, MSFT, AMZN and TSLA. These companies are not reporting any fundamentals issues that would support their drop in stock prices (not yet). These companies are mega-money-makers and should bounce back.
  • I’m going out on a limb to bet that QQQ will NOT fall another 10%.
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Trades Currently Cooking

(As of 03/12/2021)

IWM: 195p/185p  – Open 03/02/21 – Expires 04/16/21 – Max Gain = $102.00 – Open Price = $223.41
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.2%, Head Room=-12.7%, Max Loss=$897.00, ROC 11.3%, 45d Dev = 6.6
Now: Prob. OTM=89.6%, Head Room=-15.7%, IV%=7%

IWM: 195p/185p  – Open 02/24/21 – Expires 04/16/21 – Max Gain = $99.00 – Open Price = $224.68
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.6%, Head Room=-13.2%, Max Loss=$900.00, ROC 10.9%, 51d Dev = 8.7
Now: Prob. OTM=89.7%, Head Room=-15.8%, IV%=7%

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
Now: Prob. OTM=89.6%, Head Room=-8.7%, IV%=22%

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
Now: Prob. OTM=68.9%, Head Room=-4.0%, IV%=30.6%

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=78.1%, Head Room=-5.7%, IV%=30.6%

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=89.2%, Head Room=-7.2%, IV%=30.5%

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=92.6%, Head Room=-8.8%, IV%=30.5%

Trades Closed This Week

(As of 03/12/2021)

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
At Close: Prob. OTM=96.0%, Head Room=-11.3%, IV%=20.8%, ROR= 8.9%

Cost to open: $0.93 premium collected * 100 shares = $93.00
Cost to close: $0.12 premium paid * 100 shares = $12.00
Net Profit= $93.00 to open – $12.00 to close = $81.00 – fees
Actual ROR = $81.00 / $906.00= 8.9%

This position was closed 15 days early when the price to close reached 87% of max gain.

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Conclusion

This week, the Marketeers took a deep breath as the Interest and Inflation rates did not rise as feared.

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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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