“…because he was teaching his disciples. He said to them,
‘The Son of Man is going to be betrayed into the hands of men.
They will kill him, and after three days
he will rise.”
– Mark 9:31

This short Easter week focuses primarily on self-reflection that takes an existential review of my relationship with God. So this commentary has no Option-Spreads witticism and no geopolitical ranting. This week’s journal entry is – “Trade Trudging.” 

Commentary

Easter is the Christian holiday celebrating the resurrection of Jesus Christ three days after his crucifixion. It comes at such a hopeful time of year, and the optimism the resurrection “promise” represents is a great feeling to share.

Easter reminds me of how much God has blessed my life. He gave me challenges so I could learn humility. He gave me ambition so I could strive to be better. He gave me the 40-year love of a devoted wife so I could get a taste of heaven.

“He is not here. He is risen just as he said.“
– Mathew 28:6

Previous Post from OptionsTradesByDamocles

This Week’s Market Sentiment

(As of 03/29/2021)

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

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.

The 1-month Regression Channel for the VIX shows a steady decline, suggesting that the Marketeers are settling in for the current economic environment. Note: a low VIX does not mean that the market will rise (although it usually does). What it does mean is whatever direction the market is moving now, will more like continue.

The VIX ended last week at 20.1%, which is pretty mostly flat to what it was when the week started. But in a sign of progress, the VIX did end the week at 18.8% (which is a psychological win).

The current VIX (18,7%) is below the 9-Day SMA and the 9-Day SMA is below the 50-Day. But we are now being drip-feed information about the “Infrastructure Bill” (so-called) currently being debated. So we are still jittery.

The VIX continues to hover above 15, which in itself is waving the jitters flag (although weakly). But the steep drop over last week to below 20% is a good sign that we are moving in the right direction. I will initially set this week’s DEFCON (Options Trading Readiness Signal) level to 4. Let’s see if the other indicators will change this level.

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.

Some comments from Jerome Powell (ex-Federal Reserve Chairman) spooked the market late last week. And some of the news being dripped out of Congress over the Infrastructure/Tax Bill and Election Reform is causing many of us to take a double-take.

Although the Put/Call Ration took a jump last week, the 50-Day SMA is still below the .5 line. To me, this is the P/C Ration moving one way and the VIX moving another.

I’m going to leave DEFCON to 4.

Maintain DEFCON = 4

Consumer Sentiment Index (CSI):

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.

As of Mar ’21 CSI’s level has continue to rise from two weeks ago. It is now at 84.9 from 83.0 two weeks earlier. (ycharts.com). The continue improvement to Consumer Sentiment is a good sign that the economy is ramping up.

This index lever reinforces that current DEFCON level.

Maintain DEFCON = 4

Market Indexes:

DOW (DJX) = 33,073 – Up 1.3% from 32,629 last week. (4 week deviation: 689 up from 670 last week)
S&P 500 (SPX) = 3,975 – Up 1.6% from 3,913 last week. (4 week deviation: 45.6 flat from 45.8 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.

Market Thrashing

4-Week Thrashing of DJX = +/- 689 points or 2.1% of the market’s volume is flat from 2.1% last week.

4-Week Thrashing of SPX = +/- 57.0 points or 1.4% of the market’s volume is flat from 1.4% last week.

High thrashing is a signal for increased volatility. Even though there is a consensus of returning to the bull markets, it also means that there may be some short-term profit-taking continuing.

So far, all indicators are signaling caution ahead.

Maintain DEFCON = 4

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.

• Record vaccinations are easing COVID concerns
• Becoming hyper-aware of the inevitable rising of interest/inflation rates
• A Federal Infrastructure/Tax bill is being negotiated – expect lots of pork
• Election Reform Bill
• Suez Canal blockage
• Mimagration criss

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 stocks as many Marketeers will sell stocks and buy bonds. But this kind of shift in the equity markets has always been quickly absorbed, and market adjustments always rebound. I need to expect Market-Shock (adjustments) as Interest/Inflation Rates start reaching new highs.

Maintain DEFCON = 4

My sentiment for this coming week:

There continues to be a lowering of the temperature in economic and geopolitical concerns at the moment. The VIX continues to fall, and the Put/Call Ratios are confident. If it wasn’t for the Markets trying to find a new trend and the Inflation Rates getting a little scary, I would be inclined to lower the DEFCON to 3.

We are definitely moving is the right direction and I will maintain a solid DEFCON 4.

Trading Readiness Level

DEFCON = 4

This week, I will focus on:

I’m going to put the super-wide spreads (20-Strikes) in the DEFCON 3 or lower category. Two 10-Strike spreads this week seem reasonable.

• Two spreads (both totaling @ $2K risk) as the Markets see fit.
• Spread term of 8-weeks or less.
• Probability of OTM > 80%

Profit and Loss Statement

(As of 04/02/2021)

Balance Sheet

Progress Graph

(Note: the negative weekly results for weeks 4, 8 and 12 are when I withdrew $300 from the Trading Account for my paycheck.)

My Performance vs. SPY

Hypothetically, instead of depositing $16,000 in my Options Trading Account, could I have done better if I bought $16,000 of the ETF/SPY instead?

Schedule for this Week

Goals for this week: (03/29/2021 – 04/02/2021) (Week #13)

• 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: May 21 (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.

This Week’s Trade Activity

(As of 04/02/2021)

Spread Count Summary:

Current Dollars at Risk:

I went over risk-budget for both the month and this week.

New Trades Opened This Week

(03/29/2021 – 04/01/2021)

QQQ: 285p/270p  – Open 03/31/21 – Expires 05/21/21 – Max Gain = $91.00- Open Price = $318.83
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.9%, Head Room=-10.6%, Max Loss=$1,368.00, ROC 9.5%, 51d Dev = $9.4

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($10,838)
• Max dollar at risk this week < $2,000? No ($2,278)
• Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (51 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 (1.3 down from 2.0)
• Current price above 9-Day SMA?: Yes (see chart)
• 9-Day SMA above 50-Day SMA?: No (see chart)
• Short-strike < 1 SD below the current price? Yes (1SD=288.66)
• Short-strikes Prob-OTM > 80%? Yes (82.9%)
• Short-Strike price below the trend channel at expiration?: Yes (see chart)
• Current price within the bottom 1/2 of Trend Channel?: Yes (see chart)
• Long-strike at maximum width (<= 15)? Yes (15 strike width)
• Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

QQQ just came off a correction a couple of weeks ago, and has moved sideway for about four weeks. This recent correction is why the 9-Day SMA is below the 50-Day, but recent movement is pushing to prices back up. I’m betting that QQQ will not have a second correction.

DIA: 305p/295p  – Open 03/30/21 – Expires 05/21/21 – Max Gain = $91.00- Open Price = $330.31
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.0%, Head Room=-7.7%, Max Loss=$908.00, ROC 9.9%, 52d Dev = $6.9

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($9,570)
• Max dollar at risk this week < $2,000? Yes ($909)
• Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (52 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 (1.2 down from 1.2)
• 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=307.48)
• Short-strikes Prob-OTM > 80%? Yes (81.0%)
• Short-Strike price below the trend channel at expiration?: Yes (see chart)
• Current price within the bottom 1/2 of Trend Channel?: No (see chart)
• Long-strike at maximum width (<= 15)? Yes (10 strike width)
• Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

The only matrix not aligning with my Entry Rules is the “current price within bottom half of Trend Chart”.

I picked this spread because the short-term trajectory was bullish, and the IV was the lowest (2%) of the others on my watchlist. The test here is to see if I should be picking the lowest IV (with the lowest premium), thinking that it is more likely to continue on the current trajectory than the others (with high IV).

Trades Currently Cooking

(As of 04/01/2021)

DIA: 305p/290p  – Open 03/24/21 – Expires 04/30/21 – Max Gain = $99.00- Open Price = $326.73
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.2%, Head Room=-6.3%, Max Loss=$1,400.00, ROC 7.0%, 37d Dev = $6.5
Now: Prob. OTM=89.3%, Head Room=-7.7%, IV%=0%

SPY: 365p/355p  – Open 03/23/21 – Expires 04/30/21 – Max Gain = $75.00- Open Price = $392.34
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.4%, Head Room=-6.9%, Max Loss=$924.00, ROC 8.0%, 38d Dev = $5.15
Now: Prob. OTM=90.0%, Head Room=-8.5%, IV%=0.1%

QQQ: 290p/270p  – Open 03/16/21 – Expires 04/30/21 – Max Gain = $177.00- Open Price = $323.99
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.3%, Head Room=-10.5%, Max Loss=$1,822, ROC 9.7%, 45d Dev = $9.91
Now: Prob. OTM=90.3%, Head Room=-10.6%, IV%=0.0%

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
Now: Prob. OTM=84.2%, Head Room=-8.2%, IV%=4.4%

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=95.3%, Head Room=-12.7%, IV%=4.4%

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=95.3%, Head Room=- 12.7%, IV%=4.4%

Trades Closed This Week

(As of 04/01/2021)

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
At Close: Prob. OTM=99.9%, Head Room=-9.8%, IV%=??%, ROR= 9.3%

Cost to open: $0.85 premium collected * 100 shares = $85.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (Expired)
Net Profit= $85.00 to open – $0.00 to close = $85.00 – fees
Actual ROR = $85.00 / 914.00= 9.3%

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
At Close: Prob. OTM=99.8%, Head Room=-6.0%, IV%=??%, ROR= 11.0%

Cost to open: $1.00 premium collected * 100 shares = $100.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (Expired)
Net Profit= $100.00 to open – $0.00 to close = $100.00 – fees
Actual ROR = $100.00 / $899= 11.1%

This position was scary! QQQ went into a correction just after I open this position. For a brief time, the Short-Strike went ITM. At the start of this week, I was considering rolling.

Conclusion

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.”

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