“With every sun comes a new day. A new beginning. A hope that things will be better today than they were yesterday.” -Eep. So this week I will just Trade Trudge my way through. – Damocles

Trade Trudging

Grug Croods

Some weeks (like this week) I can’t seem to move beyond a shamble. So this week I will just Trade Trudge my way through.

Trade Trudging is when, like Grug, I cannot come up with any ideas for a pithy commentary on making money selling Options Spreads.

But like any other Trade Trudging week, I do plan to open one or two new Spreads this week, so the sections below should be up to date.

Eep: What do you call it?
Grug: I was thinking about calling it… a “hug”, because it rhymes with Grug.

Movie: The Croods

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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 10/17/2021)

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.

  • Kicking the Debt Ceiling can into the Holidays
  • Supply-chain tangles – container ships logjammed at US ports
  • Inflation to remain high through Christmas
  • Feds starting pullback on economic stimulus (tapering) soon
  • Central Banks interest rates set to rise
  • Major budget disagreement for Federal Fiscal Year 2022

This week’s GTS is much like last week’s.

Any Vertical Spreads opened this week and next will have to contend with the Congressional budget battles as they approach expiration. Oct 31 deadline for the spending bills and a Dec 18 deadline for the Debt Ceiling will surely rekindle the market-beating that we saw a few weeks ago.

The Feds have been purchasing an average of $120B worth of corporate bonds each month. This Quantitative Easing (QE) has kept the interest rates for these bonds down and, conversely, stocks up. But once the tapering starts, corporate bonds interest rates will begin to rise, providing a profitable alternative to stocks. This will shortly force the Central Banks to start raising their interest rates to compete.

Upward inflation pressure (rising wages, labor shortage, supply chain, spiking energy cost), Debt Ceiling negotiation Act 2 in November, plus Fed tapering is going to keep a lot of pressure on my Vertical Spreads for the next several weeks.

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 correspond with the market’s innate tendency to rise.

ThinkorSwim Chart: CBOE Market Volatility Index - 10/17/2021
ThinkorSwim Chart: CBOE Market Volatility Index – 10/17/2021

The trajectory for the 1-month VIX Regression Channel tilted down quite a bit from last week.

The VIX ended last week at 16.3%, down from 18.8% the week before.

As the budget battles in Congress continue, I expect the VIX to continue to rise or move mostly sideways in an elevated state. And after the Spending Bills are approved, I will also expect the VIX to continue higher as the Marketeers return their cash back into the markets.

The VIX has been rising over the past three months. This signals a continued confusion with the Marketeers on if the Bull market is petering out.

VIX votes a cautious DEFCON 4

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 Chart: S&P 500 Put/Call Ratio - as of 10/17/21
ThinkorSwim Chart: S&P 500 Put/Call Ratio – as of 10/17/21

The Put/Call Ratio continued at an elevated state. But I am still not too concerned since it appears to be hinged with the budget battles in Congress. But since the Congressional decision was to – make no decision (until Dec.), I will expect the political melee to pick up during the holidays.

The 9-Day SMA ended the week at 0.6, mostly flat from 0.6 the week before. I would not consider this as “running towards the hills.”

But even though the Put/Call Ratio rise is disturbing, we are still well within the “Good Shape” zone (below the 1:1 Ratio).

Mainly being above 0.5, yet not dangerously close to the insidious 1.0 line, I’ll give a cautious DEFCON 4.

Put/Call Ratio votes a cautious DEFCON 4

Consumer Sentiment Index (CSI):

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. Surveys of Consumers (umich.edu)

Consumer Sentiment Index as of 10/15/2021

Consumer sentiment has remained at a lower level for the past three months. Longer-than-expected inflation is going to be the Grinch for Christmas.

Being blind to all other indicators and just looking at this week’s CSI, I still feel we should be extremely cautious.

CSI votes a DEFCON 3

Market Indexes:

DOW (DJX) = 35,295 – up 1.6% from 34,746 last week. (4 weeks deviation: 359 up from 324 last week)
S&P 500 (SPX) = 4,471 – up 1.8% from 4,391 last week. (4 weeks deviation: 47.6 down from 54.7 last 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 Chart: Daily S&P 500 Index - Four Months Trend (Updated 10/17/2021)
ThinkorSwim Chart: Daily S&P 500 Index – Four Months Trend (Updated 10/17/2021)

Market Thrashing

4 Weeks Thrashing of DJX = +/- 359 points or 1.0% of the market’s volume is slightly up from 0.9% last week.
4 Weeks Thrashing of SPX = +/- 47.6 points or 1.1% of the market’s volume is slightly down from 1.2% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)

Lots of money came back into the S&P last week, as the Debt Ceiling rhetoric died down. But this is only a lull before the storm as the last week of Oct is going to be firey.

This week, being blind to all other indicators and just looking at current market trends will vote a cautious DEFCON 4.

Market Index votes a cautious DEFCON 4

My sentiment for this coming week:

Of the five indicators:

  • The GTS is continues to show kneejerkable content, but they appear to be short-lived – DEFCON 3
  • The VIX popped, but fell back to just below 20% – cautious DEFCON 4
  • The P/C Ratio shows consern but still in the “good shape” zone – DEFCON 4
  • The CSI shows a consumer base not excited about our economic future – DEFCON 3
  • The Market Movement took a short-term bear hit but continues long-term bullish – cautious DEFCON 4

Any Vertical Spreads opened this week and next will have to contend with the Congressional budget battles as they approach expiration. Oct 31 deadline for the spending bills and a Dec 18 deadline for the Debt Ceiling will surely rekindle the market-beating that we saw during September.

This week’s Market Sentiment shows a cautious DEFCON 4 level.

Trading Readiness Level for this week

DEFCON = 4

This week, I will focus on:

Market jitteriness is predominant. My markets expectation is a couple of weeks of higher-than-usual thrashing and moving mostly sideways.

Since “cautious” seems to be the word of the week, I will set my POTM sights as follows:

  • Enter into new Spreads for a total market risk this week of < $3K (as the Markets see fit)
  • Open (1) wide Strike-Width Spread with the Short POTM > 83%
  • Spread term of 8-weeks or less

Profit and Loss Statement

(As of 10/22/2021)

Balance Sheet

Year
2021
Month
Oct
Week
#42
Beginning Account Balance$16,000.00$19,903.72$20,317.63
Deposits (Div. & Int.)$1.26$0.00$0.00
Withdraws (paycheck)-$2,700.00-$0.00-$0.00
Premiums on Open$8,254.01$852.00$136.00
Premiums on Close-$1,016.00-$313.00-$15.00
Fees Paid (total)-$102.68-$6.13-$2.04
Ending Account Balance$20,436.59$20,436.59$20,436.59
Total Gain/Loss$4,436.59$532.87$118.96
ROR2.7%0.6%
ROC27.7%

Progress Graph

YOD Vertical Options Spreads Running P&L – As of 10/22/21

(Note1: the negative weekly results for weeks 4, 8, 12, 17, 21, 25, 30, 34, and 38 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$8,255.27
(Premiums)
0.45 shares
(Dividends Reinvested)
Funds Removed-$1,118.68
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$23,136.59
(Cash)
$19,881.77
(43.83 shares * $453.59 CV)
ROI+44.6%+24.3%
As of 10/22/2021

Schedule for this Week

Goals for this week: (10/18/2021 – 10/22/2021) (Week #42)

  • 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: Dec 10 (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 10/22/2021)

Spread Count Summary:

Year
2021
Month
Oct
Week
#42
Vertical Bull Put Credit Spread7341
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total7441

Current Dollars at Risk:

Year
2021
Month
Oct
Week
#42
Vertical Bull Put Credit Spread$13,808.$7,648.$2,365.
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$13,808.$7,648.$2,365.
Max Risk Allowed$16,000.N/A$3,000.

Vertical Spreads Opened This Week

(10/18/2021 – 10/12/2021)

SPY: 425p/400p  – Open 10/22/21 – Expires 12/03/21 – Max Gain = $136.00 – Open Price = $454.01
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.1%, Headroom-6.4%, Max Loss=$2,364, AROR=49.6%

ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 425 Put – Long: 400 Put
ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 425 Put – Long: 400 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($13,808)
  • Max dollar at risk this week < $3,000? Yes ($2,364)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (42 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 (.09 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=$430.92)
  • Short-strikes Prob-OTM > 83%? Yes (83.1%)
  • 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)
  • Strike Width minimum (>= 15)? Yes (25 strike width)

I’m thinking that the markets will be in some turmoil towards the end of this Vertical Spread’s time. So I chose SPY because the current IV% is very low and the Put/Call Ratio is below 1. So between now and expiration, SPY should run up a few percentages and add more distance from the Short Strike.

Vertical Spreads Currently Cooking

(As of 10/22/2021)

SPY: 410p/380p  – Open 10/14/21 – Expires 11/26/21 – Max Gain = $175.00 – Open Price = $440.43
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.6%, Headroom-6.9%, Max Loss=$2,825, AROR=52.3%
Now: Prob. OTM=91.1%, Headroom=-9.4%

QQQ: 330p/315p  – Open 10/07/21 – Expires 11/26/21 – Max Gain = $133.00 – Open Price = $363.94
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.2%, Headroom-9.3%, Max Loss=$1367, AROR=70.5%
Now: Prob. OTM=92.5%, Headroom=-11.7%

Rolled from 10/15: QQQ: 355p/340p  – Open 10/5/21 – Expires 11/19/21 – Max Gain = $408.00 – Open Price = $357.90
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=53.4%, Headroom-1.1%, Max Loss=$1,092, AROR=302.3%
Now: Prob. OTM=80.0%, Headroom=-4.9%

Rolled from 10/8: SPY: 430p/415p  – Open 10/1/21 – Expires 11/19/21 – Max Gain = $403.00 – Open Price = $431.38
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=47.1%, Headroom+0.1%, Max Loss=$1,097, AROR=273.0%
Now: Prob. OTM=82.6%, Headroom=-4.9%

SPY: 410p/385p  – Open 09/27/21 – Expires 11/19/21 – Max Gain = $187.00 – Open Price = $442.85
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.1%, Headroom=-7.4%, Max Loss=$2,313, AROR=55.4%
Now: Prob. OTM=92.7, Headroom=-9.4%

QQQ: 345p/330p  – Open 09/16/21 – Expires 10/29/21 – Max Gain = $119.00 – Open Price = $375.27
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=81.3%, Headroom=-8.1%, Max Loss=$1,381, AROR=72.5%
Now: Prob. OTM=97.5%, Headroom=-7.7%

SPY: 415p/400p  – Open 09/14/21 – Expires 10/29/21 – Max Gain = $131.00 – Open Price = $445.14
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=78.7%, Headroom=-6.7%, Max Loss=$1,369, AROR=77.0%
Now: Prob. OTM=98.8%, Headroom=-8.3%

Vertical Spreads Closed This Week

(As of 10/22/2021)

DIA: 325p/300p  – Open 09/23/21 – Expires 11/05/21 – Max Gain = $154.00 – Open Price = $346.46
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=79.5%, Headroom=-6.2%, Max Loss=$2,346, AROR=55.4%
At Close: Prob. OTM=95.8%, Head Room=-8.4%, AROR= 78.9%

Cost to open: $1.54 premium collected * 100 shares = $154.00
Cost to close: $0.15 premium paid * 100 shares = $15.00 (closed 16 days early)
Net Profit= $154.00 to open – $15.00 to close – $2.00 fees = $137.00
AROR= ($137.00 / 27 days in play) *365 / $2,346= 78.9%

QQQ: 350p/335p  – Open 09/08/21 – Expires 10/22/21 – Max Gain = $120.00 – Open Price = $379.40
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.7%, Headroom=-7.8%, Max Loss=$1,380, AROR=71.5%
At Close: Prob. OTM=99.8%, Head Room=-6.4%, AROR= 71.5%

Cost to open: $1.16 premium collected * 100 shares = $120.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (expired worthless)
Net Profit= $120.00 to open – $0.00 to close – $1.00 fees = $119.00
AROR= ($120.00 / 44 days in play) *365 / $1,380 = 71.5%

SPY: 425p/410p  – Open 09/09/21 – Expires 10/22/21 – Max Gain = $119.00 – Open Price = $452.05
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=79.5%, Headroom=-6.0%, Max Loss=$1,381, AROR=72.5%
At Close: Prob. OTM=99.8%, Head Room=-6.1%, AROR= 72.5%

Cost to open: $1.19 premium collected * 100 shares = $119.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (expired worthless)
Net Profit= $119.00 to open – $0.00 to close – $1.00 fees = $118.00
AROR= ($118.00 / 43 days in play) *365 / $1,381 = 72.5%

Conclusion

Can Options Trading be considered a Home Business? Can I make money at home by selling Vertical Bull Put Credit Options Spreads? These are questions that I am trying to answer for myself.

Three years ago, I set out on a task to see if I can make a retirement income from home by trading Stock Options. I began with NO knowledge of Options mechanics and only $8,000 to risk. And because I learn best when I write things down, I have documented every step of the way (every bonehead mistake, process epiphanies, interconnecting events, externalities, and so on).

This blog is my Options Trading Journal. I will record my weekly Option Contracts buys and sells in hopes of gaining experience.

Experience is the ability to recognize that
I’m about to make the same mistake again.

-Damocles

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.”