Well… this STINKS! In a failure to get my homework completed on time, I decided to punt this week’s brilliant commentary until next week.

Trade Trudging

Trade Trudging are those weeks where I miss my opportunity to comment on something spiffy. But I still open/close positions that need to be recorded. And I still need to document this week’s Market Sentiments. (I have found the “Market Sentiment” section invaluable when I need to research why great positions went so wrong.)

But I have not been idle. I have been working on next week’s monologue – and it should be a doozy.

Other Posts from OptionsTradesByDamocles

This Week’s Market Sentiment

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

(As of 06/28/2021)

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.

Geopolitical Tree-Shakers (GTS):

Geopolitical events can be breaking news, political machinations, Federal Reserve musings, or even Twitter Trends. They are events that can abruptly change the dynamics of the current markets.

GTS 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.

• Bipartisan Infrastructure Bill was a win but quickly appeared to be a Rope-A-Dope.
• Feds tiptoe into Tapering – rising interest/inflation rates will be a continued background pressure for some time
• Cryptocurrency is getting a lot of coverage, but should not drive the Markets.
• The debate over the $3T “Human Infrastructure” will cause consternation, but I do not think it will go anywhere without another bipartisan effort.
• Federalizing national election effort failed in the Senate – wouldn’t have past Supreme court Mustard anyway (see U.S. Constitution)

This week’s GTS is pretty much like last week. There is little significant Market-Jarring events on the near horizion.

The high-energy effort of the Marxist left has taken it on the chin these past few weeks. People are waking up to WOKE, and CRT is being rejected as an indoctrination playbook, Congressional efforts to nationalize liberty are being rejected, and most critical, the national liberal media is pivoting from manufacturing hysteria. We still have a long ways to go to cleanse our politics from the Marxist bent, but it’s looking better.

This week’s GTS is remaining mainly static with last week’s. Rising inflation fears will keep stocks from the aggressive growth of the past four years. As a result, I foresee my Spread’s underlying assets will slow its volatility (smaller premiums to collect) and continue to move positively to sideways – depending on how the Feds slide into tapering over this summer.

I feel good about the short-term market prospects, but I should be better prepared for a scarier ride.

I will initially set the DEFCON (Damocles Options Trading Readiness Signal) to 4.

Setting DEFCON to 4

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 one-month forward-looking volatility, 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. Since the intrinsic nature of the Stock Market is to move up, a VIX close to 15% or below will have an innate tendency to rise.

The 1-month Regression Channel for the VIX showed the Markets appear to be leveling off just above 15%.

The VIX ended last week at 15.6%, down from 20.7% the week before. The 9-Day SMA is below the 50-Day SMA, and the current VIX is below the 9-Day SMA.

These values suggest the Marketeers are looking closely at how inflation may affect their portfolio. But I think that most of the concern has already been factored in.

Even a sideways market is good at times.

Maintaining 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.

The Put/Call Ratio for the S&P 500 returned back to the near 0.5 level, recovering from the knee-jerk reaction from the Fed Meeting earlier. The 9-Day SMA continues to has peeked above the 0.5 line as anticipated. This indicator is agreeing with the VIX that there is a little concern about how inflation will rob value from stocks. But the magnitude of that concern is not massive.

(Even though the P/C Ratio over the past month averaged above the .5 line, it is still far below the “Head for the Hills” 1.0 line.)

Maintaining DEFCON = 4

Consumer Sentiment Index (CSI):

I’m searching for a new Consumer Sentiment Index (CSI) chart as provided by the University of Michigan.

A low CSI index 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.

Even though the sentiment levels ticked down in late June, it is still > 3% above May. This late month downward movement was probably caused by the last Fed’s meeting. But since then, most Marketeers have shaken off the bump. With the lack of significant GTS to bum us out, I will assume that the news update will be a nice jump up.

Maintaining DEFCON = 4

Market Indexes:

DOW (DJX) = 34,436 – up 3.4% from 33,290 last week. (4 week deviation: 362 up from 323 last week)
S&P 500 (SPX) = 4,281 – up 2.8% from 4,166 last week. (4 week deviation: 25.67 flat from 25.54 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 = +/- 362 points or 1.0% of the market’s volume is flat from 1.0% last week.
4-Week Thrashing of SPX = +/- 25.57 points or 0.6% of the market’s volume is flat from 0.6% last week.

The Markets had a good last week, but it was primarily giving back what it unjustifiably took the week before. The flat thrashing between the last two weeks suggests that the Marketeers gave back as aggressively as they took.

The 4-month Trend Channel regain little more bulling tilt while the 4-week trajectory remains bullish.

The thrashing was slightly mixed between indexes, with the trajectory slowing moving bullish. The 4-week and 4-month trajectory confirm that we are still bullish on these indexes.

Maintain DEFCON = 4

My sentiment for this coming week:

Of the five indicators:

• the GTS is confirming already acknowledged concern about rising inflation/interest rates – YAWN
• the VIX has not moved much in the past four weeks (even with all the inter-week gyration) confirming short-term paranoia but still has a positive outlook – YAWN
• the P/C Ratio shows a minor concern of a market pullback – YAWN
• the CSI shows a consumer base getting excited about our economic future – YEAH
• the Market Movement inching bullish – YEAH

I need to be prepared for the market to move sideways and maybe a little down for the new few weeks. I still have a positive outlook with my Entry Rules.

Trading Readiness Level for this week

DEFCON = 4

This week, I will focus on:

My short-term outlook for my Vertical Bull Put Credit Spreads is positive. I will maintain within my stated budget, but I will change my position strategy and open narrower strike-width spreads, but more of them.

• Three 10 Strike-Wide spreads this week totaling < $3.0K risk) as the Markets see fit
• Spread term of 8-weeks or less
• Probability of OTM > 80%

Profit and Loss Statement

(As of 07/02/2021)

Balance Sheet

	Year 2021	Month June	Week #26
Beginning Account Balance	$16,000.00	$17,811.04	$18,182.82
Deposits (Div. & Int.)	$0.65	$0.15	$0.15
Withdraws (paycheck)	-$1,800.00	-$300.00	-$0.00
Premiums on Open	$4,623.01	$1,021.00	$280.00
Premiums on Close	-$351.00	-$109.00	-$51.00
Fees Paid (total)	-$69.00	-$19.38	-$8.16
Ending Account Balance	$18,403.81	$18,403.81	$18,403.81
Total Gain/Loss	$2,403.91	$592.77	$220.99
ROR		3.3%	1.2%
ROC	15.0%

Progress Graph

(Note: the negative weekly results for weeks 4, 8, 12, 17, 21 and 25 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?

	Options Trading	SPY (Fictional)
Initial Investment (As of Jan 4, 2021)	$16,000 (Cash)	$16,000 (43.39 shares @ $368.55)
Funds Added	$4,623.81 (Premiums)	0.31 shares (Dividends Reinvested)
Funds Removed	-$420.00 (Early Close & Fees)	$0 (Fractional Shares Sold)
Ending Balance	$20,203.81 (Cash)	$18,898.36 (43.70 shares * $432.51 CV)
ROI	+26.3%	+18.1%

Schedule for this Week

Goals for this week: (06/28/2021 – 07/02/2021) (Week #26)

• 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: Aug 20 (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, if 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 07/02/2021)

Spread Count Summary:

	Year 2021	Month June	Week #26
Vertical Bull Put Credit Spread	46	12	4
Vertical Bear Call Credit Spread	0	0	0
Vertical Bull Put Debit Spread	0	0	0
Vertical Bull Call Debit Spread	0	0	0
Margin Interest	1	0	0
Total	47	12	4

Current Dollars at Risk:

	Year 2021	Month June	Week #26
Vertical Bull Put Credit Spread	$8,850.	$8,850.	$3,720.
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	$8,850.	$8,850.	$3,720.
Max Risk Allowed	$16,000.00	$12,000	$3,000.

Vertical Spreads Opened This Week

(06/28/2021 – 07/02/2021)

IWM: 205p/195p  – Open 07/02/21 – Expires 08/20/21 – Max Gain = $56.00 – Open Price = $229.36
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=86.2%, Headroom=-10.6%, Max Loss=$944, AROR=43.4%

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($8,850)
• Max dollar at risk this week < $3,000? No ($3,720)
• Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (49 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 down from 1.4)
• Current price above 9-Day SMA?: No (see chart)
• 9-Day SMA above 50-Day SMA?: Yes (see chart)
• Short-strike < 1 SD below the current price? Yes (1SD=$211.02)
• Short-strikes Prob-OTM > 80%? Yes (86.2)
• 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 (>= 10)? Yes (10 strike width)

This was a last-minute bonus position entered after 6 positions were closed this week. Of the 6, 4 were early closed with a cost of $51, but a return of near $6,000 of risk dollars. I entered this position with a high Prob-OTM.

QQQ: 325p/315p  – Open 07/01/21 – Expires 08/20/21 – Max Gain = $80.00 – Open Price = $354.06
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.3%, Headroom=-8.2%, Max Loss=$920, AROR=62.71%, 50d Dev = $10.21

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($13,555)
• Max dollar at risk this week < $3,000? Yes ($1,856)
• 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 (0.6 down from 0.7)
• 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=$324.50)
• Short-strikes Prob-OTM > 80%? Yes (84.0)
• 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 (>= 10)? Yes (10 strike width)

DIA: 320p/310p  – Open 06/30/21 – Expires 08/20/21 – Max Gain = $70.00 – Open Price = $344.22
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.0%, Headroom=-7.0%, Max Loss=$930, AROR=53.1%, 52d Dev = $3.20

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($13,555)
• Max dollar at risk this week < $3,000? Yes ($1,856)
• 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 (0.6 down from 0.7)
• 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=$324.50)
• Short-strikes Prob-OTM > 80%? Yes (84.0)
• 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 (>= 10)? Yes (10 strike width)

First position in a long time where ALL the Entry Rules are satisfied.

SPY: 400p/390p  – Open 06/29/21 – Expires 08/20/21 – Max Gain = $74.00 – Open Price = $428.20
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.9%, Headroom=-6.6%, Max Loss=$926, AROR=55.3%, 52d Dev = $5.00

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($14,961)
• Max dollar at risk this week < $3,000? Yes ($926)
• 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)? No (1.3 up from 1.0)
• 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=$402.29)
• Short-strikes Prob-OTM > 80%? Yes (81.9)
• 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 (>= 10)? Yes (10 strike width)

Vertical Spreads Currently Cooking

(As of 07/02/2021)

DIA: 320p/310p  – Open 06/24/21 – Expires 08/06/21 – Max Gain = $71.00 – Open Price = $341.52
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.2%, Headroom=-6.3%, Max Loss=$929, ROC 7.5%, 43d Dev = $1.56

QQQ: 315p/295p  – Open 06/22/21 – Expires 07/30/21 – Max Gain = $101.00 – Open Price = $345.02
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.1%, Headroom=-8.7%, Max Loss=$1,899, ROC 5.3%, 38d Dev = $6.89

QQQ: 315p/300p  – Open 06/15/21 – Expires 07/30/21 – Max Gain = $113.00 – Open Price = $342.62
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.9%, Headroom=-8.0%, Max Loss=$1,387, ROC 8.1%, 44d Dev = $6.54

SPY: 400p/390p  – Open 06/10/21 – Expires 07/23/21 – Max Gain = $85.00 – Open Price = $423.75
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=78.8%, Headroom=-5.4%, Max Loss=$915, ROC 8.3%, 43d Dev = $2.93
Now: Prob. OTM=73.4%, Headroom=-3.9%, IV%=13.2%

Vertical Spreads Closed This Week

(As of 07/02/2021)

This week, 4 positions closed early while the Live AROR was much improved over what they were at opening.

Premium paid to close these 4 were (0.13 + 0.07 + 0.17 + 0.14) = $0.51 * 100 = $51.00 + fees
Dollars no longer at risk ($2,340 + 1,415 + 1,384 + 1,430) = $6,569

SPY: 375p/360p  – Open 06/18/21 – Expires 07/30/21 – Max Gain = $70.00 – Open Price = $416.54
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=86.9%, Headroom=-10.0%, Max Loss=$1,430, ROC 4.8%, 42d Dev = $4.62
At Close: Prob. OTM=96.4%, Head Room=-13.1%, IV%=9.5%, AROR= 114.7%

Cost to open: $0.70 premium collected * 100 shares = $70.00
Cost to close: $0.14 premium paid * 100 shares = $14.00
Net Profit= $70.00 to open – $14.00 to close = $56.00 – fees

Closed 28 days early via a 80% of Max Gain Trade Trigger.

QQQ: 310p/295p  – Open 06/09/21 – Expires 07/23/21 – Max Gain = $116.00 – Open Price = $337.24
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.9%, Headroom=-8.1%, Max Loss=$1,384, ROC 8.3%, 44d Dev = $6.17
At Close: Prob. OTM=96.4%, Head Room=-13.1%, IV%=9.5%, AROR= 114.7%

Cost to open: $1.16 premium collected * 100 shares = $116.00
Cost to close: $0.17 premium paid * 100 shares = $17.00
Net Profit= $116.00 to open – $17.00 to close = $99.00 – fees

Closed 21 days early via a 85% of Max Gain Trade Trigger.

SPY: 385p/370pp  – Open 06/03/21 – Expires 07/16/21 – Max Gain = $85.00 – Open Price = $419.10
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85%, Headroom=-8.2%, Max Loss=$1,415, AROR=50.4%, 43d Dev = $1.15
At Close: Prob. OTM=98.1%, Head Room=-10.8%, IV%=0%, AROR= 68.5%

Cost to open: $0.85 premium collected * 100 shares = $85.00
Cost to close: $0.07 premium paid * 100 shares = $7.00
Net Profit= $85.00 to open – $7.00 to close = $78.00 – fees

Closed 14 days early via a 92% of Max Gain Trade Trigger.

SPY: 390p/365pp  – Open 05/27/21 – Expires 07/16/21 – Max Gain = $160.00 – Open Price = $420.24
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.4%, Headroom=-7.2%, Max Loss=$2,340.00, AROR 49.6%, 50d Dev = $3.79
At Close: Prob. OTM=97.6%, Head Room=-9.7%, IV%=<.1%, AROR= 64.1%

Cost to open: $1.60 premium collected * 100 shares = $160.00
Cost to close: $0.13 premium paid * 100 shares = $13.00
Net Profit= $160.00 to open – $13.00 to close = $147.00 – fees

Closed 14 days early via a 92% of Max Gain Trade Trigger.

DIA: 315p/305pp  – Open 05/21/21 – Expires 07/02/21 – Max Gain = $60.00 – Open Price = $343.45
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.7%, Headroom=-8.3%, Max Loss=$940.00, AROR=55.5%, 42d Dev = $2.86
At Close: Prob. OTM=99.1%, Head Room=-8.4%, IV%=8.4%, AROR= 55.6%

Cost to open: $.60 premium collected * 100 shares = $60.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (expired worthless)
Net Profit= $60.00 to open – $0.00 to close = $60.00 – fees
Actual AROR = $60.00 / 42 days * 365 / $940.00 = 55.6%

QQQ: 295p/280pp  – Open 05/21/21 – Expires 07/02/21 – Max Gain = $104.00 – Open Price = $329.59
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.8%, Headroom=-10.4%, Max Loss=$1,369.00, AROR=66.0%, 42d Dev = $7.19
At Close: Prob. OTM=94.9%, Head Room=-13.1%, IV%=13.4%, AROR= 65.4%

Cost to open: $1.04 premium collected * 100 shares = $104.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (expired worthless)
Net Profit= $104.00 to open – $0.00 to close -$1.00 fee = $103.00
Actual AROR = $103.00 / 42 days * 365 / $1,369.00 = 65.4%

Conclusion

Disclaimer

Even though I have tried to make it clear that this blog is my personal trading journal, 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.”