Where did my Vertical Spread go? I spent a day last week half panicked, half confused, and half annoyed as I began a “Where’s Waldo” search for vanishing Options Contracts.

Combining Vertical Spreads – Accidently

Waldo looking for my missing Vertical Spreads

In two separate weeks, I opened two new Vertical Spreads that disappeared. Both were mysteriously replaced by one Vertical Spread that I did not open.

My Watchlist’s Active Trades showed what I should have, and my logs confirm the transactions. But the ThinkorSwim trading platform did not jive with my documentation – what happened?

The Unexpected Transaction-Reaction

To know where I need to go, I must first understand where I have been. So below is a brief outline of what happened last week.

Poof – Disappearing Spreads

On Jun 30, I open a Vertical Bull Put Credit Spread for DIA: Short Put = 320, Long Put = 310, expiring Aug 20. I collected a total of $70 premium from the Spread.

Then a week later, on Jul 7, I opened another DIA Vertical Spread: Short Put = 325, Long Put = 320, expiring Aug 20. From this Spread, I collected $41.

But once my Jul 7 order was executed, the reaction from Ameritrade was unexpected.

Of the two Spreads that I opened, I found the Short Strike from the Jun 30 Spread vanished along with the Long Strike from the Jul 7. There were no entries for these two Options contracts in ThinkorSwim’s position section, nor were they listed in TD Ameritrade’s website Position Page. Poof – gone.

What was left was only the Short Strike from July 7 and the Long Strike from Jun 30.

Once I saw that my records did not match Ameritrade’s, I  began a day’s worth of playing “Where’s Waldo” with my Options Contracts.

Where’s Waldo?

After examination, the mysterious transaction reaction last week was starting to make sense.

Ameritrade’s ThinkorSwim Trading Platform makes entering complex Options strategies easy. It recognizes my intended strategy, makes all the math calculations, and makes sure that I do not violate my trading account’s boundaries. It combines all these separate transactions into what seems like one step. So when I submit a Vertical Pull Put Credit Spread order, it looks something like this…

Ameritrade’s Order = 1 Vertical Spread for DIA (expiration of Aug 20) with the Short = 325, the Long = 310 for a net premium of $0.41.

But internally, the process of entering into a new Vertical Spread is two separate and unconnected transactions:

What Ameritrade actually does:

  1. Queue Sell Order for 1 DIA/Aug-20 Short = 325
  2. Queue Buy Order for 1 DIA/Aug-20 Long = 310
  3. Wait until two compatible order becomes available with a net premium of $0.41
    • Sell 1 DIA/Aug-20 Short = 325 for $1.92
    • Buy 1 DIA/Aug-20 Long = 310 for $1.51

Two Spreads Makes One

So on July 7, the act of buying the DIA-Aug20 Long Strike 320 actually closed out the June 30 DIA-Aug20 Short Strike 320.  So what was left was the Short Strike 325 of July 7 and the Long Strike of 310.

Example of two Vertical Spreads turning into one.

Technically, what I inadvertently accomplished was a “roll.” On July 07, I accidently rolled my June 30, 320p/310p into a 325p/310. This transaction was not a “bad” thing – if I did it deliberately. But rolling a winning trade accidentally – is embarrassing.

For more information on when to roll a working position, see my post “How to Manage Losing Vertical Spreads.”

Was this a Problem?

Finding my lost Vertical Spreads

Other than driving me nuts and wasting half a day shagging down how to re-record my logs – No! The risk profile, the premiums collected, the expiration dates, etc., collectively did not change.

The accounting for the unintended rolling looked like this:

Buying the July 7 Long 310 Strike cost me $151. That purchase was used to cancel the June 30 Short 310, for which I owed $180. So a result of losing one Spread, I gained a realized profit of ($180 – $151) = $29.00. So I can’t complain too much.

Additionally, the risk dollars that I was carrying between the original two “supposive” Spreads was (June 30 = $1,000 + July 7 = $500) = $1,500. Once the accidental roll occurred, my risk dollars for the remaining Franken-spread remains $1,500.

What Should I do?

I now see the need to change how I log my trading activity. Instead of managing my inventory as Spreads, I need to record each Option contract individually – agnostic to the Spread that created them.

I also need to upgrade my Watchlist’s Active Positions section to dynamically generate my Spreads based on my log file, allowing me to close individual Options contracts and still see what Spreads I have running.

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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 07/05/2021)

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.

  • Surging house prices is becoming a growing crissis-managment concern for Central Banks
  • Feds tiptoe into Tapering – rising interest/inflation rates will be a continued background pressure for some time
  • Resurgence in the delta version of COVID is rasing eyebrows
  • International Corporate 15% tax rate minimum might not be implemented until 2022
  • There are still a lot of post pandemic pentup demands for goods and services (masive unspent savings)

There is a national narrative that is minimizing consumer inflation concerns and maximizing growth possibilities.

The COVID-CON lockdowns that crushed the economic engine came with a prediction for a massive rebound when the economy came back online. And the superball economic bounce back (which were are in now) also comes with a projection of high inflation. So we know overreaching inflation will happen, and we also know that it is just transitory.

Although I continue to feel optimistic about the long-term growth, I think it will start moving in slow starts and stops. Flash downturns like what we saw last week will become frequent as skittish Marketeers try to interpret crazy economic news. 

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.

ThinkorSwim/CBOE Market Volatility Index - 07/11/2021
ThinkorSwim/CBOE Market Volatility Index – 07/11/2021

The 1-month Regression Channel for the VIX is showing that the Marketeers are continuing to relax. The VIX ended last week at 16.2%, up from 15.1% the week before. The 9-Day SMA is below the 50-Day SMA, and the current VIX is barely below the 9-Day SMA. The last remnants of a hysterical nation seem to be subsiding.

These values suggest the Marketeers continue to shrug off the immediate effects of a rising Inflation Rate, and no news about the upcoming Federal Fiscal budget continues to give everyone a pause.

The VIX has hovered in the 16%-17% range for the past three months. This is not all that bad, but it does show an ongoing nervous nervousness over the recovery outlook.

Clam waters are great for sailing… I will Maintain DEFCON 4.

Maintaining DEFCON = 4

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Put/Call Ratio:

Put Options are frequently used as protection 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.

ThinkorSwim/S&P 500 Put/Call Ratio - as of 07/11/21
ThinkorSwim/S&P 500 Put/Call Ratio – as of 07/11/21

The Put/Call Ratio showed a bump above 0.5 for a short time last Thursday. But recovery was as quick.

The 9-Day SMA is below the 0.5 line as well as the Put/Call Ratio for most of last week. This indicator is agreeing with the VIX that there are few general market concerns.

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.

Consumer Sentiment Index as of 6/27/2021
Consumer Sentiment Index as of 6/27/2021

I’m expecting the CSI to bump when the next update is released. Last week reported a lot of open jobs ready for those unemployed who are still getting the unemployment bump.

Maintaining DEFCON = 4

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Market Indexes:

DOW (DJX) = 34,870 – up 0.2% from 34,786 last week. (4 week deviation: 376 up from 360 last week)
S&P 500 (SPX) = 4,370 – up 0.4% from 4,352 last week. (4 week deviation: 52.54 up from 40.1 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.

ThinkorSwim/Daily S&P 500 Index - Four Months Trend (Updated 07/11/2021)
ThinkorSwim/Daily S&P 500 Index – Four Months Trend (Updated 07/11/2021)

Market Thrashing

4-Week Thrashing of DJX = +/- 376 points or 1.0% of the market’s volume is flat from 1.0% last week.
4-Week Thrashing of SPX = +/- 52.54 points or 1.2% of the market’s volume is up from 0.9% last week.

The Markets continue to have a good (quite) last few weeks. The flat thrashing between the previous two weeks suggests that the Marketeers are pretty much in harmony with Market Risks.

The 4-month Trend Channel is maintaining a long-term Bullish bent, and the 4-week trajectory aligns.

The Market Thrashing is technically low as the Indexes continue its trajectory of slowing moving bullish. If history is any kind of indicator, we should continue having winning Vertical Spreads.

Maintain DEFCON = 4

My sentiment for this coming week:

Of the five indicators:

  • The GTS suggests a blind-eye towards inevatable rise in inflaction/interest (expect Market reactions) – BOO!
  • The VIX is slowly fallng but hovers round 16% for the past 3 months – BLAH!
  • The P/C Ratio shows growth in Call Options buying (more believe that stocks will go up than down)- YEAH!
  • The CSI shows a consumer base getting excited about our economic future, but still well below 95% – SAD!
  • The Market Movement inching bullish – YEAH!

There is not a consensus in “YEAHs” with this week’s indicators. But I do have a very positive outlook for any new Vertical Bull Put Credit Spreads that I will open this week.

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.

Even though last week I tried multi-contract, 5 Strike-Wide spreads, I need to reserve these to the DEFCON 5 level.

  • Three 10 Strike-Wide or 2 15 Strike-Side spreads this week totaling < $3.0K risk) – as the Markets see fit
  • Spread term of 8-weeks or less
  • Probability of OTM > 80%
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Profit and Loss Statement

(As of 07/16/2021)

Balance Sheet

Year
2021
Month
July
Week
#28
Beginning Account Balance$16,000.00$18,415.81$18,617.75
Deposits (Div. & Int.)$0.65$0.00$0.00
Withdraws (paycheck)-$1,800.00-$0.00-$0.00
Premiums on Open$5,051.01$416.00$211.00
Premiums on Close-$362.00-$11.00-$11.00
Fees Paid (total)-$75.12-$6.12-$3.06
Ending Account Balance$18,814.69$18,814.69$18,814.69
Total Gain/Loss$2814.69$398.88$196.94
ROR2.2%1.1%
ROC17.6%

Progress Graph

TOD Vertical Options Spreads Running P&L - As of 07/16/21
TOD Vertical Options Spreads Running P&L – As of 07/16/21

(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
Account
SPY
(Fictional)
Initial Investment
(As of Jan 4, 2021)
$16,000
(Cash)
$16,000
(43.39 shares @ $368.55)
Funds Added$5,051.81
(Premiums)
0.31 shares
(Dividends Reinvested)
Funds Removed-$437.12
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$20,614.69
(Cash)
$19,002.14
(43.70 shares * $434.88 CV)
ROI+28.8%+18.8%
As of 7/16/2021
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Schedule for this Week

Goals for this week: (07/11/2021 – 07/16/2021) (Week #28)

  • 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: Sep 3 (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.
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This Week’s Trade Activity

(As of 07/16/2021)

Spread Count Summary:

Year
2021
Month
July
Week
#28
Vertical Bull Put Credit Spread5152
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total5252

Current Dollars at Risk:

Year
2021
Month
July
Week
#28
Vertical Bull Put Credit Spread$13,064.$5,113.$2,789.
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$13,064.$5,113.$2,789.
Max Risk Allowed$16,000.00$12,000$3,000.
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Vertical Spreads Opened This Week

(07/12/2021 – 07/16/2021)

QQQ: 330p/315p  – Open 07/15/21 – Expires 08/27/21 – Max Gain = $102.00 – Open Price = $362.23
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.7%, Headroom=-8.9%, Max Loss=$1,398, AROR=61.3%

Vertical Bull Put Credit Spread – QQQ – Short: 330 Put – Long: 315 Put
Vertical Bull Put Credit Spread – QQQ – Short: 330 Put – Long: 315 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($14,451)
  • Max dollar at risk this week < $3,000? Yes ($2,789)
  • 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)? No (1.9 up 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=$331.38)
  • Short-strikes Prob-OTM > 80%? Yes (83.7)
  • 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 (15 strike width)

SPY: 410p/395p  – Open 07/13/21 – Expires 08/27/21 – Max Gain = $109.00 – Open Price = $437.47
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.2%, Headroom=-6.3%, Max Loss=$1,391, AROR=63.0%

Vertical Bull Put Credit Spread – SPY – Short: 410 Put – Long: 395 Put
Vertical Bull Put Credit Spread – SPY – Short: 410 Put – Long: 395 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($13,053)
  • Max dollar at risk this week < $3,000? Yes ($1,391)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (45 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 (0.9 down from 1.6)
  • 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=$414.89)
  • Short-strikes Prob-OTM > 80%? Yes (81.2)
  • 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 (15 strike width)
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Vertical Spreads Currently Cooking

(As of 07/16/2021)

IWM: 205p/185p  – Open 07/09/21 – Expires 08/27/21 – Max Gain = $135.00 – Open Price = $225.54
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.2%, Headroom=-9.1%, Max Loss=$1,865.00, AROR=53.5%
Now: Prob. OTM=83.4%, Headroom=-9.2%, IV%=7.1%

DIA: 325p/320p  – Open 07/07/21 – Expires 08/20/21 – Max Gain = $82.00 – Open Price = $346.97
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.5%, Headroom=-6.3%, Max Loss=$918.00, AROR=72.3%
Now: Prob. OTM=83.4%, Headroom=-9.2%, IV%=7.1%

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%
Now: Prob. OTM=83.4%, Headroom=-9.2%, IV%=7.1%

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
Now: Prob. OTM=86.9%, Headroom=-9.9%, IV%=14.6%

DIA: 325p/310p  – Open 07/07/21 – 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
Now: Prob. OTM=84.5%, Headroom=-6.7%, IV%=5.9%

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
Now: Prob. OTM=86.6%, Headroom=-8.0%, IV%=2.9%

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
Now: Prob. OTM=92.6%, Headroom=-8.2%, IV%=5.9%

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
Now: Prob. OTM=96.1%, Headroom=-12.7%, IV%=14.5%

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=95.6%, Headroom=-8.0%, IV%=3.1%

Vertical Spreads Closed This Week

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, AROR=65.5%
At Close: Prob. OTM=97.4%, Head Room=-13.0%, IV%=30.0%, AROR= 84.9%

Cost to open: $1.13 premium collected * 100 shares = $113.00
Cost to close: $0.11 premium paid * 100 shares = 11.00
Net Profit= $113.00 to open – $11.00 to close – $2.00 fees = $100.00 – fees
AROR= ($100.00 / 31 days in play) * 365 / $1,387 = 84.9%

This position closed after 14 days early (31 days in play) via a 90% of max-gain trade trigger. This early closed improved the overall value of the position by (84.9% – 65.5% = ) 19.4%.

Because this closed more than two weeks yearly, I now have an additional $1,387 to apply to next week’s “Max Dollars at Risk.”

(As of 07/09/2021)

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Conclusion

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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.”

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