You know, trudging?
To trudge, the slow, weary,
depressing yet determined walk
of a man who has nothing left in life
except the impulse to simply… soldier on.

Chaucer (Movie: A Knight’s Tale)

Commentary

Whether it be conflicts in schedules, oak allergies, beautiful spring days, lack of motivation, or just playing in the mud – this week has been spent in other grand pursuits and not Options awareness.

But I did make some trades that I need to record.

I also wanted to make sure I document how I “thought” this week will perform (See “This Week’s Market Sentiment” below). I have found the “Market Sentiment” section invaluable when I need to research why great positions went so wrong.

So until next week… I’ll be making mud pies!

Other Posts from OptionsTradesByDamocles

This Week’s Market Sentiment

(As of 04/19/2021)

In this section, I review five indicators: VIX, Put/Call Ratio, S&P 500, 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, the markets with a VIX closer to 15% or below will have an innate tendency to rise.

The 1-month Regression Channel for the VIX continues to shows a steady decline, suggesting that the Marketeers are settling into 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 16.3%, a little lower than the week’s before 16.7%.

The current VIX (16.3%) is below the 9-Day SMA and the 9-Day SMA is below the 50-Day. So there is a steady trend towards lower volatility.

The VIX continues to hover slightly above 15%, which in itself is waving the jitters flag. Based solely on this number, I will start this week’s DEFCON (Options Trading Readiness Signal) at 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.

At 0.46, there is nothing this Put/Call Ratio is saying other than most Marketeers are “going long” on their investments. This is a good sign of confidence.

The 9-Day SMA has also dropped below 0.5 line, and below the 50-Day SMA. So it looks like the trend has some legs.

There is nothing here that will drop the DEFCON lower. I’m going to leave DEFCON to 4.

Maintain DEFCON = 4

Consumer Sentiment Index (CSI):

(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.

This week’s CSI level has ticked up to 86.50 from 84.9 weeks earlier.

I changed the chart to 3-year to provide perspective at what the CSI level was prior to the COVID-Lockdowns.

But it is below 90, so I can’t say “things are peachy.” But the continued improvement in Consumer Sentiment is a good sign that the economy is ramping up.

The CSI level below 90 would have pulled the DEFCON down from 5 to 4 (if the VIX had set it to 5 in the first place). But 86.5 index level reinforces that current DEFCON level.

Maintain DEFCON = 4

Market Indexes:

DOW (DJX) = 34,201- Up 1.2% from 33,801 last week. (4 week deviation: 500 up from 370 last week)
S&P 500 (SPX) = 4,185- Up 1.4% from 4,129 last week. (4 week deviation: 93.8 up from 69.3 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 = +/- 370 points or 1.5% of the market’s volume is up from 1.0% last week.
4-Week Thrashing of SPX = +/- 69.3 points or 2.2% of the market’s volume is up from 1.7% last week.

The S&P 500 Index (SPX) broke through last week’s resistance line, causing this week’s Trend-Channel to crank up a little more bullish.

The DOW thrashing in the 1.x% is indicating a steady-hand market. And since the DOW’s trend trajectory is bullish, there is no reason to believe that will change. So with the VIX being near 15%, the P/C Ratio below 0.5, and the calming market is bullish, I will not change the DEFCON.

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.

The GTS for this week:

• A Federal Infrastructure/Tax bill is being negotiated – expect lots of pork
• Record vaccinations are easing COVID concerns
• Rising interest/inflation rates will be at the top of the GTS for some time
• The national debate on racial inequalities are heating
• Retail Sales up by 10% between Feb and Mar
• Over a million jobs were added last month

The markets have been steadily climbing for the past year – totally recovering from the COVID-Crash. The Trend-Channel trajectory is now better than the Trump years. And the market’s Sugar-High from all the stimuli is approaching “too good to be true.”

Most of the great economic numbers we are seeing is based upon the bounce back from the COVID-CON of 2020. If the pandemic had not been exacerbated as much as it was, then these numbers would have been just the continuation of the Trump policies.

Maintain DEFCON = 4

My sentiment for this coming week:

The indicators (VIX, CSI, P/C Ratio, and Market Trends) continue to show a happy group of Marketeers for this coming week. But geopolitical events will always be a significant influencer for my Vertical Bull Put Credit Spreads. Regardless of whether the events are real or fake, hyper-political news can send the markets into a tizzy at any time.

This week is lacking substantial geopolitical conflict is supporting at least the short-term continuation of aggressive investments. But there is a lot on the GTS’s precipice that can cause the Marketeers to start reevaluating their portfolios.

I feel that there will still be a couple of weeks aggressive growth.

VIX, GTS, P/C Ratio and current Markets are strong motivators to maintain DEFCON 4.

Trading Readiness Level

DEFCON = 4

This week, I will focus on:

• Two spreads (both totaling < $2.5K risk) as the Markets see fit.
• Spread term of 8-weeks or less.
• Probability of OTM > 80%

Profit and Loss Statement

(As of 04/23/2021)

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: (04/19/2021 – 04/23/2021) (Week #16)

• 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: Jun 11 (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 04/23/2021)

Spread Count Summary:

Current Dollars at Risk:

New Trades Opened This Week

(04/19/2021 – 04/23/2021)

DIA: 320p/310p  – Open 04/21/21 – Expires 05/28/21 – Max Gain = $75.00- Open Price = $340.69
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.1%, Head Room=-6.1%, Max Loss=$925.00, ROC 8.0%, 36d Dev = $5.40

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($9,200)
• Max dollar at risk this week < $2,500? Yes ($2,318)
• Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (36 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 (1.0 dn from 1.9)
• 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=322.72)
• Short-strikes Prob-OTM > 80%? Yes (84.2%)
• 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)

Including this new position, I have four positions opened with the expiration date of 5/28. Selecting DIA as the underlying was to make sure I had some diversity in these four.

SPY: 390p/375p  – Open 04/21/21 – Expires 05/28/21 – Max Gain = $107.00- Open Price = $415.85
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.3%, Head Room=-6.2%, Max Loss=$1,393.00, ROC 7.6%, 37d Dev = $9.65

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($8,275)
• Max dollar at risk this week < $2,500? Yes ($1,393)
• Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (37 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 dn from 1.5)
• 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=393.15)
• Short-strikes Prob-OTM > 80%? Yes (82.3%)
• 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 (15 strike width)
• Set a GTC Conditional Trailing Stop Limit (CTSL): (Not Set)

Trades Currently Cooking

(As of 04/23/2021)

IWM: 205p/195p  – Open 04/16/21 – Expires 05/28/21 – Max Gain = $100.00- Open Price = $244.17
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.3%, Head Room=-8.5%, Max Loss=$900.00, ROC 11.0%, 42d Dev = $5.42

QQQ: 310p/295p  – Open 04/14/21 – Expires 05/28/21 – Max Gain = $125.00- Open Price = $339.95
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.4%, Head Room=-8.8%, Max Loss=$1,374.00, ROC 9.0%, 44d Dev = $10.35

QQQ: 300p/280p  – Open 04/08/21 – Expires 05/21/21 – Max Gain = $119.00- Open Price = $333.83
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.4%, Head Room=-10.1%, Max Loss=$1,879.00, ROC 6.3%, 43d Dev = $7.80

IWM: 200p/190p  – Open 04/06/21 – Expires 05/21/21 – Max Gain = $80.00- Open Price = $225.02
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.8%, Head Room=-11.1%, Max Loss=$919.00, ROC 8.6%, 45d Dev = $5.80

DIA: 305p/390p  – Open 03/30/21 – Expires 05/21/21 – Max Gain = $131.00- Open Price = $318.83
(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

Trades Closed This Week

(As of 04/23/2021)

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
At Close: Prob. OTM=99.8%, Head Room=-8.7%, IV%=9.1%, ROR= 11.5%

Cost to open: $1.03 premium collected * 100 shares = $103.00
Cost to close: $0.0 premium paid * 100 shares = $0.00 (Expired worthless)
Net Profit= $103.00 to open – $0.00 to close = $103.00 – fees
Actual ROR = $103.00 / $896.00 = 11.5%

A week after this position was opened, IWM dropped below the opening price of $230.45 and never recovered. IWM continue to drop nearly 5% before closing this Friday.

QQQ: 285p/270p  – Open 03/31/21 – Expires 05/21/21 – Max Gain = $131.00- 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
At Close: Prob. OTM=96.1%, Head Room=-16.7%, IV%=8.4%, ROR= 8.1%

Cost to open: $1.31 premium collected * 100 shares = $131.00
Cost to close: $0.20 premium paid * 100 shares = $20.00
Net Profit= $131.00 to open – $20.00 to close = $111.00 – fees
Actual ROR = $111.00 / 1,368.00 = 8.1%

This position closed 33 days early via a 85% of max gain trade trigger of $.20 (closed at $.20)

This position was closed the week before this. I closed via trade trigger after I posted last week’s Journal Entry.

Conclusion

All work and no play makes Damocles a dull boy.

New week, I hope to publish why I chose the underlying assets for my Options Spreads.

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