We are on the precipice of being so ignorant that our democracy is threatened. -Walter Cronkite (Lost Art of Journalism)

Is it Journalism or Editorializing?

In an environment where we have such an adversarial divide in our national civility and political unity, I can’t emphasize enough how sensational and jingoistic news reporting can tank my Spread portfolio.

So, as an example of how geopolitics can affect the success of my Spread efforts, this week’s “off-topic” Journal Entry will look back to where national news was short, informative, and not irritating. This week, I want to remember Uncle Walter.

Where’s Walter Cronkite When I Need Him?

It’s easy to be sobering when describing the events that lead up to a plane crash, or objective when reporting baseball scores. But, when it comes to economics, government policies, or other geopolitical events, I cannot find a reliable news organization with newscasters who won’t just spoon-feed me the news that fits his partisan spin. Professional journalism should tell people what they need to know – not what they should think about it. News reports must be fair, accurate, and unbiased.

The Most Trusted News Anchor

Is It Time to Revise Our Libel Laws?

I am dumbfounded that there hasn’t been a crackdown
with the libel and slander laws
on some of these would-be writers and reporters on the Internet.

– Walter Cronkite

Earlier this year, Justices Clarence Thomas and Neil Gorsuch jointly stated that the Supreme Court should revisit the standards for libel protections for journalists and media organizations. I wholeheartedly agree, since the last time the Supreme Court visited these laws was in 1964 – long before the Internet and Social Media.

Now, any individual can fall under this same protection. A contributor to the Twitter Mob, the Cancel Culture, the MeTooers, and many others can post unsubstantiated and harmful information on a host of Social Media platforms and feel protected under the “Freedom of Speech” amendment. Instigating riots, revenge porn, and other destructive posting have various state laws to help combat these harmful posts, but most fall short of the federal libel laws.

More needs to be done than just replying with a Bully Emoji.

Freedom of speech is not just the cornerstone of democracy –
freedom of speech is democracy.

– Damocles

Truth in Reporting

When I come across articles about politicians, the authors almost always attach their title and political affiliation to their names – Rep Nancy Pelosi (D), Sen Mitch McConnell (R). This labeling allows me to understand the perspective of the information being reported.

In the same truth in reporting, I would also like to see the same labeling for new reporters – Bob Woodward (Neutral Journalist), Bill O’Reilly (Conservative Commentator), Joe Scarborough (Liberal Propagandist). But unfortunately, all these reporters hold the title of Journalist – which makes their reporting confusing.

Trust is at the heart of what we do.
The recent sustained attacks on the truth remind us how precious that is.
To me, there is no higher honor than to have earned that trust.

– Lester Holt (Neutral(?) Journnalist)

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 07/18/2021)

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.

Each of my five indicators will “vote” on a DEFCON (Damocles Options Trading Readiness Signal) level, exclusive to that indicator. Then, In the final sub-section “My sentiment for this coming week” below, I’ll compile the votes into a DEFCON level for the 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.

• Raising inflation is stoking fear that the Feds will consiter rasing Interest Rates sooner than projected
• A $6 Trillion Federal Budget is throwing gas on the Inflation fear fire and stoking the fear of Stagflation
• Federal Debt limit triggers “Extraordinary Measures” by the U.S. Treasury Department
• The Government and media are using scare tactics to modivate the unvaccinated
• Eviction moratorium ends – Biden rushes to hand out billions in aid to tenants and landlords
• Private payroll numbers disappoints, lockdown recovery flagging

Inflation and Interest Rate fears will be a long-term weight on my Spreads decisions. Eventually, the harmful effects from higher commodity prices will affect stock prices as the pain of short supply kicks in.

Surpassing the U.S. debt limit will generate fear of a default on its debt obligations, and that fear can cause T-Bill’s interest rates to spike, and that will cause stocks to droop, and that will threaten my open Spreads position.

In May, businesses have reported about 9,000,000 (nine million) jobs openings, but few takers. This is a major red flag that throwing stimulus money at the country will not encourage economic growth. After all, why get a job where the Feds will pay me more not to work.

Increase angst among the Congressional parties in Washington will hamper its ability to deal with the increased inflation issue. As narrow of a majority that the Democrats have in both chambers, nothing will get done that won’t be totally undone in the next congress without bipartisan support.

Although Corporate America is reporting strong performances this quarter, all are giving us a warning in their Earnings Reports. Inflation is going to have a future impact on stock prices and sales predictions.

GTS votes a DEFCON 3

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 looks a lot like last week’s. There is a growing trend of the Marketeers buying protective Puts, which implies a lowering of confidence that the long-term Market projection will remain strongly bullish.

The VIX ended last week at 18.24%, down from 19.5% the week before. The 9-Day SMA remains above the 50-Day SMA, and the current VIX is still above the 9-Day SMA.

The VIX continues to hover in the 18% range. This is not all that bad, but it shows an ongoing nervousness over the recovery outlook.

VIX votes a DEFCON 3

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.

The Put/Call Ratio has remained chiefly above the 0.5 line showing a moderate degree of jitteriness from the Marketeers. And the increased amplitude is suggesting indecision as to the long-term trajectory of the current Markets. Moreover, the peeks seem to correlate with the Fed’s report on inflation and employment.

The 9-Day SMA continues above the 0.5 line, while the 50-Day SMA continues to track just below 0.5. This indicator is agreeing with the GTS that there are general market concerns.

Put/Call Ration votes a DEFCON 3

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.

The CSI showed slight improvement from the mid-July preliminary numbers but still falls from last month. This signals that most of us do not feel we are making any headway with the recovery.

CSI votes a DEFCON 3

Market Indexes:

DOW (DJX) = 34,935 – Down 0.4% from 35,062 last week. (4 week deviation: 272 flat from 278 last week)
S&P 500 (SPX) = 4,395 – Down 0.4% from 4,412 last week. (4 week deviation: 38.5 flat from 38.68 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 = +/- 272 points or 0.8% of the market’s volume is flat from 0.8% last week.
4-Week Thrashing of SPX = +/- 38.5 points or 0.9% of the market’s volume is flat from 0.9% last week.
(The Market Thrashing is now below 1.0%. This might indicate a steady-state market.)

Just looking at the Market’s performance, the four-month trend is strongly bullish, the four-week trajectory is strongly bullish, and overall Market thrashing is low. All of this signals a motivated market to stay the current course.

But the Marketeers appears to have a monthly tantrum that sends the Markets into adjustment territory. These drops appear when the Feds are reporting disappointing employment of inflation data. I’m reading this Market Index section as mostly all good, but there is nagging at the Marketeers.

Market Index votes a DEFCON 4

My sentiment for this coming week:

Of the five indicators:

• The GTS suggests that there are some sustainable issues on the horizon – BOO!
• The VIX took a sharp turn to the worse – BOO!
• The P/C Ratio shows a reaction that may continue to spill over to the comming weeks – BOO!
• The CSI shows a consumer base not getting excited about our economic future – BOO!
• The Market Movement continue to defiantly inch bullish – YEAH!

There is a strong consensus toward the “BOOs” this week. But I do have a positive outlook that the BOOS will not last for eight weeks, and will not be “THAT” severe.

The Russell 2000 Index (2,000 small-cap companies) has been in a sideways trajectory for four months. This leveling is supported by the broader Markets losing most of their steam over the same period. As a result, I am going to expect mostly sideways Markets over the next few months.

Note: my Vertical Bull Put Options Spread strategy can win premiums when the Markets move up, move sideways, and move down (as long as the downward movement is not too much). So in these times, I will choose a Short Strike that is at least 5-points south of 1SD, has a wide Spread-Width for loss resistance, and has a Prob-OTM of greater than 85%.

Trading Readiness Level for this week

DEFCON = 3

This week, I will focus on:

At the start of this week, I already have $15,942 out of my max at-risk budget of $16,000 in play. But I have one position (10 Strike spread) that will likely expire worthlessly at the end of the week. Therefore, unless some other Spreads closes early, I should technically not enter into any new Spread contracts this week. But if I do, I will wait until Thursday or Friday and claim the overlap.

• One 20 or 25 Strike-Wide Vertical Put Spreads < $3K risk) – as the Markets see fit
• Spread term of 8-weeks or less
• Probability of OTM > 85%

Profit and Loss Statement

(As of 08/06/2021)

Balance Sheet

Progress Graph

(Note1: the negative weekly results for weeks 4, 8, 12, 17, 21, 25, and 30 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: (08/02/2021 – 08/06/2021) (Week #31)

• 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 24 (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 08/06/2021)

Spread Count Summary:

Current Dollars at Risk:

Vertical Spreads Opened This Week

(08/2/2021 – 08/06/2021)

Note: only one Spread was open this week because I hit the Max Dollars At Risk budget.

QQQ: 340p/325p  – Open 08/05/21 – Expires 09/10/21 – Max Gain = $82.00 – Open Price = $368.11
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.1%, Headroom=-7.6%, Max Loss=$1,418, AROR=59.6%

Entry Rules for Vertical Bull Put Credit Spreads:

• Current maximum dollars at risk < $16,000? Yes ($15,511)
• Max dollar at risk this week < $3,750? Yes ($1,418)
• Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (35 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 1.8)
• 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=$345.64)
• Short-strikes Prob-OTM > 85%? Yes (85.1%)
• 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)

Vertical Spreads Currently Cooking

(As of 08/06/2021)

SPY: 400p/380p  – Open 07/29/21 – Expires 09/17/21 – Max Gain = $1.11 – Open Price = $441.40
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.7%, Headroom=-9.4%, Max Loss=$1,889, AROR=42.5%
Now: Prob. OTM=88.3%, Headroom=-9.6%

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%
Now: Prob. OTM=94.2%, Headroom=-10.5%

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%
Now: Prob. OTM=91.6%, Headroom=-7.4%

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=88.1%, Headroom=-8.3%

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=95.4%, Headroom=-7.8%

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=93.1%, Headroom=-8.4%

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=95.3%, Headroom=-7.7%

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=97.1%, Headroom=-9.6%

QQQ: 340p/320p  – Open 07/22/21 – Expires 08/13/21 – Max Gain = $84.00 – Open Price = $363.15
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.8%, Headroom=-6.3%, Max Loss=$1,916, AROR =71.9%
Now: Prob. OTM=97.5%, Headroom=-7.9%

SPY: 410p/390p  – Open 07/21/21 – Expires 08/13/21 – Max Gain = $113.00 – Open Price = $433.20
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.0%, Headroom=-5.3%, Max Loss=$1,887, AROR =94.2%
Now: Prob. OTM=98.1%, Headroom=-7.4%

Vertical Spreads Closed This Week

(As of 08/06/2021)

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, AROR=64.0%, 43d Dev = $1.56
At Close: Prob. OTM=99.8%, Head Room=-9.2%, AROR= 64.0%

Cost to open: $0.71 premium collected * 100 shares = $71.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (expire worthlessly)
Net Profit= $71.00 to open – $0.00 to close – $1.00 fees = $70.00
AROR= ($70.00 / 43 days in play) * 365 / $929.00 = 63.9597%

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
At Close: Prob. OTM=97.6%, Head Room=-11.9%, AROR= 77.1%

Cost to open: $0.80 premium collected * 100 shares = $80.00
Cost to close: $0.08 premium paid * 100 shares = $8.00
Net Profit= $80.00 to open – $8.00 to close – $2.00 fees = $70.00
AROR= ($70.00 / 36 days in play) * 365 / $920.00 =77,1%

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.”