What happens when my Vertical Spread is assigned? What should I watch when my Short Strike goes ITM. The Good, the Bad, and the Ugly of Vertical Spread Assignments. – Damocles

Vertical Spread Assignments

The Good, the Bad and the Ugly of Vertical Spread Assignments
Clint Eastwood (Blondie)

This past September was brutal for the Marketeers as Congress publicly debated suspending the Federal Debt Ceiling and passing historic Tax/Spend Bills. Predictions of vanishing 401Ks, $10/gal gas, and end-times weather events sent several of my open Spreads ITM.

Congressional decision – punt.

Since I expect a reboot of the September market-beating this December, this week’s Journal Entry will reboot a previous post as I reexamine what happens when my Vertical Bull Put Credit Spreads expires ITM (in-the-money) and is assigned.

  Commentary Contents

Anatomy of a Vertical Put Spread

To understand what happens when my Options get assigned, I need a basic review of the parts of a Vertical Put Spread.

Options Contracts

Buying or selling Options requires me to enter into a contractual agreement with my broker. One clause of that agreement acknowledges that each Options contract represents 100 shares of the underlying asset. Another clause requires me to b32\

\`uy, for each contract, 100 shares of the underlying at a predetermined price (the “Short Strike Price”) – should my broker demand.

Note, if I am required to buy 100 shares of the underlying asset due to an assignment, and if I do not have enough cash in my account, my broker can indiscriminately sell any funds I have to cover the cost difference.

Short vs. Long Puts

When I open a new Vertical Bull Put Credit Spread, I am entering a position that includes two different Put Option contracts that will expire on the same day – a Short Put and a Long Put.

  1. The Short Put: I will sell one Put contract that will become my Short leg (“Short” because I am selling an Option contract that I do not own, so literally, I am “short” that contract).
  2. The Long Put: At the same time, I will buy another Put contract that will become my Long leg (long because I will own that contract, and I can do with it as I want for as long as I want).

Short Put’s Obligation

Selling a Put Option comes with some obligations. Specifically, if the underlying asset’s value falls and becomes ITM, I am obligated to honor the contract agreement. That agreement states that if my broker “chooses,” they can demand that I buy the 100 shares of the underlying asset at the agreed Short Strike price. Or, my broker can wait until a later time to make the assignment. Or maybe not make the call at all.

But if the Option contract expires with the Short Strike ITM, then the assignment will be automatic and unforgiving.

Long Put’s Obligations

Buying a Put Option does not obligate me in any way. I already paid for it, so technically, my part is done. I can sell it when I want, and I can exercise it if ITM or keep it until the contract expires – all my options.

Other Players (The Options-Verse)

For me to enter into a Spread, someone else within the Options-verse will have to buy a Put Options contract with the same configuration I want to sell. Likewise, someone will have to sell the same Put configuration that I want to buy. And those “someones” don’t need to be the same someones.

The point to make is the buy and sell transaction between two separate people does not create a connected pair (someone did not buy my Put, but rather two Puts with the same configuration were both bought and sold simultaneously.) Thus, the fate of my Vertical Bull Put Credit Spread is NOT beholden to a specific individual.

Options Clearing Corporation

All options transactions are rolled up from the brokers to the “Options Clearing Corporation (OCC)” – the arbiter of the Options-verse.

Same-Day Substitution Rule

Brokers have a “Same-Day Substitution” rule that will exempt margin interest charges if the buy/sell transaction happens the same day.

Calculating Max-Loss for a Vertical Spread

Max-Loss on any Vertical Bull Put Credit Spread is the dollar difference between the Short Strike and the Long Strike times 100 (one options contract assumes 100 shares).

For example:
Spread’s Short-Strike = $345
Long-Strike = $325
Maximum dollar risk = ($345 – $325) * 100 = $2,000

When opening a new Vertical Spread position, I am required to set aside enough ready cash in my trading account to cover max loss if things get “Ugly.”

Assignments – What Happens

Exercising a Long Put will automatically trigger the process of assigning a Short Put Option somewhere in the Options-verse. A Long Put Options contract can be exercised anytime before expiration, should the owner choose. Or it will be automatically exercised on behalf of the owner if the contract expires ITM (In-The-Money).

The process for assignment of one Put Options contract is the same if early assigned or expired ITM:

  • A Trader within the Options-Verse who owns a Long Put Option initiates his right to exercise his Option (this initiation will be automatic if the Options expire ITM). His broker will not hesitate to honor his request by:
    1. Borrow money from his account’s margin
    2. Buy 100 shares of the underlying asset from his broker’s inventory at the current asset price
    3. Sell 100 shares of the assets back to his broker at the contractual Put Option price (Long Strike price)
    4. Payback the money borrowed from his margin account – the account owner keeps the difference
    5. Voids/removes the exercised Put contract from his account
    6. Notify the OCC of the exercising transaction

For Example:
Long Strike (LS) = $345
Underlying current value (cv) = $325

Long Put Option Contract Exercised:

  • Trader borrows $32,500 from his margin account
  • Trader buys 100 shares at cv (100 * $325/shr = $32,500 )
  • Trader sells 100 shares at LS (100 * $345/shr = $34,500)
  • Trader pays back borrowed $32,500 to his margin account
  • Trader’s Gross profit = $2,000
  • Broker notifys OCC
  • The OCC (Options Clearing Corporation) will determine which brokerage firms will be responsible for completing the assignment through an “equitable selection process.”
  • If the OCC selects my brokerage firm, my broker has a standardized lottery process to determine who amongst all their accounts will complete the assignment. If I am unlucky enough to have my account picked, my broker will:
    1. Borrow money from my account’s margin
    2. Buy 100 shares of the underlying from my broker’s inventory at the contractual price (the Short Strike price)
    3. Sell 100 shares back to my broker at the current asset price 
    4. Payback the money borrowed from my margin

Part of the payback money comes from the proceeds of the underlying just sold, and the balance should come from the set-aside cash in my trading account. If my set-aside cash is not enough to complete the transaction, my broker will sell my Long Put contract at the current market value.

  • Removes the assigned Short Put contract from my account
  • Remove the sold Long Put contract from my account
  • Notify the OCC of the completed assignment transaction.
  • The OCC will finally settle the transaction differences between the brokers.

For Example:

Short Strike (SS) = $345
Underlying current value (cv) = $325

Short Put Option Contract Assignment:

  • I borrow $34,500 from my margin account
  • I buy 100 shares at SS (100 * $345/shr = $34,500 )
  • I sell 100 shares at cv (100 * $325/shr = $32,500)
  • I repay $32,500 to my margin account
  • My gross profit = -$2,000
  • Broker notifys OCC

If I have $2,000 or more in my trading account, my broker will automatically withdraw $2,000 to satisfy what I owe to my margin.

If I have less than $2,000, my broker will automatically sell any asset in my account to make up the difference.

The Good – Early Assignment

If my Short Put Options contract has not yet expired, but the underlying asset’s price falls below the Strike Price, then my Short Strike is ITM and I am now in danger of early assignment.

But, for my pre-expired option contract to be assigned, I will have to be unlucky enough to have my broker selected to fulfill the assignment AND have my account randomly chosen by my broker.

Thus, I can have my Short Put dip into ITM and not be assigned. However, if my Short Put contract expires ITM, my contract will automatically be assigned.

The Bad – Short Strike Assignment

Spread Traders who have the Short-Strike assigned don’t always lose.

Last year, I learned that the wider strike-width for my Vertical Spread, the more loss-tolerant my position. (See, “How To Make Loss Resistant Vertical Spreads – Strike Width“)

If the Short Strike is ITM at expiration, but the Long-Strike is still OTM (out-of-the-money), the potential dollar loss on the transaction will be less than Max-Loss.

For example:
Short Strike = $345
Underlying value = $338 at expiration
I will then lose ($345 – $338) * 100 = $700. (Not the $2,000 that was placed at risk when I opened the Spread.)

It is also possible that my Short Strike Put Option can be ITM and assigned at expiration, but I can still earn a profit from the Vertical Spread. See the table COMPARING DIFFERENT STRIKE-WIDTHS

The Ugly – Long Strike Assignment

The Ugly is when both the Short and Long Strike go ITM, and both contracts are assigned at expiration. This scenario is Max Loss for the Spread position, and I am accountable to my broker for the cash difference as calculated by the Max-Loss above.


Entry Rules for Vertical Bull Put Credit Spreads
The "limiting loss by limiting risk" blunder. One 10-Strike-width Vertical Bull Put Credit Spread has a significant loss-buffer built-in.
Using Excel with ThinkorSwim
Walking through steps of installing thinkorswim on a new laptop and how to get Excel to pull live data …
Exit Rules: Vertical Credit Spreads – Pt 1
Having an Escape Plan (Exit Rules) for my open Vertical Bull Put Credit Spreads is just as critical as …

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.

  • The $3.5T Social Spending bill is being redefined below $2T
  • The Federal Debt Ceiling is yet to be resolve
  • Labor shortages continues to exacerbate supply-chain tangles
  • Inflation to remain high through Christmas
  • Feds to start tapering soon
  • Self-imposed deadline for passing the $1T infrastruture bill (Oct 31) is less than a week away

The news that the $3.5T Social spending bill is being redefined below $2T (and will still be lower) has generated a sigh of relief from the Marketeers. This change demonstrates the general rejection of the progressives’ Socialising America agenda.

Biden’s “Build Back Better” campaign for the 2020 national election was a slogan for a better recovery from the COVID Lockdown. After the election, the definition was shanghaied by the Progressives as making a “generational transformation of America” – a bait and switch. To me, the $1.3T Infrastructure bill makes sense for this Congress. And if Presiden Biden wants to go Big-Green, Democrats should make that the central focus of the 2022 elections. If the Democrats are able to keep both houses, then it would be for that reason and then I would be less opposed.

Any Vertical Spreads opened this week and next will have to contend with the renewed 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 in September.

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 (VIX) - 10/24/2021
ThinkorSwim Chart: CBOE Market Volatility Index (VIX) – 10/24/2021

The trajectory for the 1-month VIX Regression Channel has aggressively moved towards the 15% line (came very close to breaching at 15.01 for the first time since February of last year).

The VIX ended last week at 15.4%, down from 16.3% the week before.

Generally, the VIX is suggesting that the Marketeers are starting to feel good about the Markets.

Over the past 6-months, the VIX signaled a steady concern for the health of the bull market. It could be concern over the new Administration’s financial policies, the deep political division, or the fear of a $5T tax/spend bill may exacerbate the already devastating inflation rate. But the past couple of weeks showed a decisive return to a market VIX norm.

VIX votes a 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 10/25/21
ThinkorSwim Chart: S&P 500 Put/Call Ratio – as of 10/25/21

This week’s Put/Call Ratio retreated back to below 0.5 as the Marketeets return to a buying mentality. Apparently, buying-the-dip is the goal.

But since the Congressional decision on the debt ceiling 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 0.53, below the 0.6 from the week before. And the 9-Day SMA has also dropped below the 50-Day SMA. This shows a return to a general calming of the Marketeers.

I’ll give a DEFCON 4.

Put/Call Ratio votes a 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 not been updated since the last journal entry. It continues to signal pessimism with our economic outlook.

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) = 35,677 – up 1.1% from 35,295 last week. (4 weeks deviation: 533 up from 359 last week)
S&P 500 (SPX) = 4,545 – up 1.7% from 4,471 last week. (4 weeks deviation: 77.1 up from 47.6 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 10/24/2021)
ThinkorSwim Chart: Daily S&P 500 Index – Four Months Trend (Updated 10/24/2021)

Market Thrashing

4 Weeks Thrashing of DJX = +/- 533 points or 1.5% of the market’s volume is aggressively up from 1.0% last week.
4 Weeks Thrashing of SPX = +/- 77.1 points or 1.7% of the market’s volume is aggressively up from 1.1% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)

The S&P 500 saw an aggressive rebound from the rout in September. Lots of money came back into the S&P last week, as the Debt Ceiling rhetoric died down.

This week, being blind to all other indicators and just looking at current market trends will vote a 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 10/29/2021)

Balance Sheet

Year
2021
Month
Oct
Week
#43
Beginning Account Balance$16,000.00$19,903.72$20,436.59
Deposits (Div. & Int.)$1.26$0.00$0.00
Withdraws (paycheck)-$3,000.00-$300.00-$300.00
Premiums on Open$8,376.01$974.00$233.00
Premiums on Close-$1,043.00-$340.00-$27.00
Fees Paid (total)-$106.26-$9.71-$3.06
Ending Account Balance$20,329.53$20,329.53$20,329.53
Total Gain/Loss$4,329.53$425.81-$107.06
ROR2.1%-0.5%
ROC27.1%

Progress Graph

YOD Vertical Options Spreads Running P&L – As of 10/29/21

(Note1: the negative weekly results for weeks 4, 8, 12, 17, 21, 25, 30, 34, 38, and 43 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$8,478.27
(Premiums)
0.45 shares
(Dividends Reinvested)
Funds Removed-$1,148.74
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$23,329.53
(Cash)
$20,032.99
(43.83 shares * $457.04 CV)
ROI+45.8%+25.2%
As of 10/28/2021







Schedule for this Week

Goals for this week: (10/24/2021 – 10/29/2021) (Week #43)

  • 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 17 (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 10/29/2021)

Spread Count Summary:

Year
2021
Month
Oct
Week
#43
Vertical Bull Put Credit Spread7562
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total7662

Current Dollars at Risk:

Year
2021
Month
Oct
Week
#43
Vertical Bull Put Credit Spread$12,968.$9.558.$3,277.
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$12,968.$9.558.$3,277.
Max Risk Allowed$16,000.N/A$3,000.







Vertical Spreads Opened This Week

(10/25/2021 – 10/29/2021)

SPY: 425p/410p  – Open 10/28/21 – Expires 12/10/21 – Max Gain = $1.01- Open Price = $456.89
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=82.9%, Headroom-7.0%, Max Loss=$1,399, AROR=60.7%

ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 425 Put – Long: 410 Put
ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 425 Put – Long: 410 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($12,968)
  • Max dollar at risk this week < $3,000? No ($3,277)
  • 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)? Yes (1.5 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)
  • Short-strikes Prob-OTM > 83%? 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)
  • Strike Width minimum (>= 15)? Yes (15 strike width)

QQQ: 345p/325p  – Open 10/26/21 – Expires 12/17/21 – Max Gain = $122.00 – Open Price = $381.02
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.2%, Headroom-9.4%, Max Loss=$1,878, AROR=45.2%

ThinkorSwim Chart: Vertical Bull Put Credit Spread – QQQ – Short: 345 Put – Long: 325 Put
ThinkorSwim Chart: Vertical Bull Put Credit Spread – QQQ – Short: 345 Put – Long: 325 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($11,569)
  • Max dollar at risk this week < $3,000? Yes ($1,878)
  • 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)? Yes (.1.2 down from 1.4)
  • 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=$357.23)
  • Short-strikes Prob-OTM > 83%? 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)
  • Strike Width minimum (>= 15)? Yes (20 strike width)

I continue to think the markets will be in some turmoil towards the end of this Vertical Spread’s time. So I chose this QQQ because the current IV% is 7% (low) and the Put/Call Ratio is below is nearing 1. So between now and expiration, QQQ should run up a few percentages to add more distance from the Short Strike.







Vertical Spreads Currently Cooking

(As of 10/29/2021)

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%
Now: Prob. OTM=81.8%, Headroom=-6.2%

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%

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%

Vertical Spreads Closed This Week

(As of 10/29/2021)

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%
At Close: Prob. OTM=95.2%, Head Room=-13.4%, AROR= 146.2%

Cost to open: $1.33 premium collected * 100 shares = $133.00
Cost to close: $0.27 premium paid * 100 shares = $27.00 (expired 31 days yearly)
Net Profit= $133.00 to open – $27.00 to close – $2.00 fees = $104.00
AROR= ($104.00 / 19 days in play) *365 / $1,367 = 146.2%

Bouncing off the September lows, this Spread exited via a 80% of max Trade Trigger after only 19 days at risk.

Closing this position returns $1,367 back into my “available risk” dollars. So I may compensate this week by increasing the week’s Max Risk from $3,000 to $4,000.

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%
At Close: Prob. OTM=99.8%, Head Room=-7.8%, 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%

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%
At Close: Prob. OTM=99.8%, Head Room=-8.4%, AROR= 77.0%

Cost to open: $1.31 premium collected * 100 shares = $131.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (expired worthless)
Net Profit= $131.00 to open – $0.00 to close – $1.00 fees = $130.00
AROR= ($130.00 / 45 days in play) *365 / $1,369 = 77.0%







Conclusion

Can selling options for income 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.”