November continues to be a sphincter-clencher as I believe that any new Vertical Spreads I enter this month will be pummeled during the end-of-year budget debates in the Senate.

Don’t quit, and don’t give up. The reward is just around the corner.
And in times of doubt or times of joy, listen for that still, small voice.

 Joanna Gaines, The Magnolia Story

Fixing Up National Economics

Fixer-Uppers Chip and Joanna Gaines
Chip and Joanna Gaines

With Biden’s Misery Index at 10.8%, our National Economic Policies desperately needs a Fixer-Upper. Can we count on Chip and Joanna Gaines to help?

In an old post, “Are We Miserable Yet?” I revisited the Carter/Reagan era Misery Index and published a table listing the Misery index for every year between 1975 and 2019 (from Ford to Trump). The last time the US struggled through a 6%+ Inflation Rate was a blip back during Bush 1’s first year. Before that, I have to go back to the Jimmy Carter years.

Today’s Misery Index

Today’s Misery Index = 10.8% (6.2% Inflation Rate + 4.6% Unemployment) has not been this high since just after the Financial Crisis of 2008.

More Inflation To Come?

Inflation happens when lots of people have lots of money but there is a shortage of stuff to buy. This causes a bidding war over what is available and the price of stuff goes up.

Lots of Money

In early 2020, Trump signed the $2 trillion CARES Act to help those who will lose their jobs during the coming lockdowns. That was followed by a $900 billion stimulus package before Trump left. Upon entering office, Biden then signed a $2 trillion American Rescue Plan. This was joined by a $1.2 trillion infrastructure bill just signed into law Monday. So, in less than two years, the US government opened its purses to over $6 trillion sent into our hands. That’s over $6 trillion in new federal spending even without the nearly $2 trillion social safety net bill that is being debated now. Pretty soon, I’ll be talking about real money.

Nothing To Buy

In early 2020, the US government mandated a lockdown of businesses (manufacturing and its Supply Chain) creating a worldwide shortage of the items/articles/things we need to buy.

Even though over the past 6 to 9 months, the US has been ramping up manufacturing, our supply chain is still lagging far behind. We are having a hard time getting products from the factories to the distribution centers, to the local stores’ shelves. And with the dearth of things to buy and lots of money in our hands, inflation will continue to rise.

Lots More Money Comming?

Yet to come, is the $6 trillion, no, $3 trillion, no, $1.9 trillion social welfare spending bill. This bill is the cornerstone of Biden’s economic agenda, but more and more Democratic moderates are now seeing this bill as feeding the inflation fire before the US can fix our supply chain woes. Throwing more money into an already overheated bidding war for available stuff is going to make that stuff more and more expensive.

This bill is the cornerstone of Biden’s economic agenda. But if it passes before our supply chain can heal, I would expect the National Misery Index will skyrocket.

I always thought that the ‘thriving’ would come when everything was perfect,
and what I learned is that it’s actually down in the mess that things get good.

 – Joanna Gaines, The Magnolia Story

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 11/15/2021)

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.

  • Nomination for Fed Chief this week
  • Unrealistic exuberance continue to push the markets to new highs
  • $1.9 trillion Build Back Better may get delay until Jan
  • End of year Federal budgets marithon
  • The Federal Debt Ceiling is yet to be resolve – expect heated battles
  • Inflation rises to new highs
  • Consumer Sentiment hits a new low

Jerome Powell’s Fed Chairmanship is up for renewal in February 2022. He was thought of as the shoo-in for renomination for months, but it seems he now has competition. Biden, in his pursuit to feminize government, is also considering Lael Brainard for the leadership role. Changing the captain at the helm during rough seas is going to have a knee-jerk reaction with the Marketeers – one way or the other.

The Build Back Better social spending bill is now ground zero for a bitter partisan battle. Without the Infrastructure Bill being held as a hostage, most Democrat moderates in both chambers can now be free to debate what needs to be included.

I am expecting a drawn-out Senate debate over raising the Debt Ceiling and modifying the Build Back Better bill. This will have a predictable negative effect on the markets.

Any Spreads opened this week and next will have to contend with the renewed Congressional budget battles that will restart within the next 2 – 3 weeks. The 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/December, 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) – 11/07/2021

The trajectory for the 1-month VIX Regression Channel took a drastic turn higher and continues to skirt above the 15% line. The VIX ended last week at 16.3%, flat from 16.5% the week before.

Generally, the VIX continues to suggest that the Marketeers are “OK” about the Markets. But a continued gloom on where we are economically going is keeping the markets slightly volatile.

Over the past 6-months, the VIX has moved mostly sideways, signaling a steady concern for the health of the bull market. It could be concern over the new Administration’s financial policies and a deep political division that will not be able to provide any direction.

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 11/14/21
ThinkorSwim Chart: S&P 500 Put/Call Ratio – as of 11/14/21

This week’s Put/Call Ratio is well below 0.5 as the Marketeers continue an aggressive buying spree for the last four weeks.

The 9-Day SMA ended the week at 0.42, mostly flat from 0.43 the week before. The 9-Day SMA is below the .5 line. This continues to show a belief that future market trajectories will remain strongly bullish.

Just because the 50-Day SMA is above 0.5, this week will get a DEFCON 4. (To make a DEFCON 5, the 9-Day, the 50-Day, and the current Put/Call Raito needs to be below 0.5)

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 11/14/2021
Consumer Sentiment Index as of 11/14/2021

At 66.8 the Consumer Sentiment Index fell to its lowest level in a decade – even lower than the depth of the 2020 COVID lockdowns of 71.8. Out-of-control inflation and the general feeling that the consumer cannot do anything about it, are driving the doldrums. This is NOT good news for the Democrats coming into 2022.

This tanking is going to light some fires under some fence-sitting congressmen as the debates over a $2T Social Spending bill plus the imminent Debt Ceiling on Dec 8.

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) = 36,100 – down 0.9% from 36,328 last week. (4 weeks deviation: 327 down from 571 last week)
S&P 500 (SPX) = 4,683 – down 0.3% from 4,698 last week. (4 weeks deviation: 68.78 down from 102.5 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 11/14/2021)
ThinkorSwim Chart: Daily S&P 500 Index – Four Months Trend (Updated 11/14/2021)

Market Thrashing

4 Weeks Thrashing of DJX = +/- 327 points or 0.9% of the market’s volume is significantly lower from 1.6% last week.
4 Weeks Thrashing of SPX = +/- 68.78 points or 1.5% of the market’s volume is down from 2.2% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)

The 4-week market thrashing fell significantly from last week. This is suggesting that the Marketeers are getting comfortable with the current trajectory.

Being blind to all other indicators and just looking at current market trends I will continue to vote for DEFCON 4.

Market Index votes a 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

The month of November continues to be a Sphincter Clencher as I believe any new Vertical Spreads I enter this month will be pummeled during the end-of-year budget debates in the Senate.

I still expect a turbulent December as Congress fight through the confluence of raising the debt ceiling and passing the Build-Back-Better Spending bill. The possibility of a government shutdown looms high, and that will send my Vertical Spreads towards ITM.

This week’s Market Sentiment shows a very cautious DEFCON 3 level, because of these indicators. I can’t help to think that a sharply divided Senate, high partisan angst, and contentious social spending bills will grind the government to a halt for several weeks in Dec or Jan.

Trading Readiness Level for this week

DEFCON =3

This week, I will focus on:

The teeing up of a spectacular Senate battle in December can send the markets into correction territory. Therefore, my markets expectation is several weeks of higher-than-usual thrashing and moving mostly sideways or sharply down for a short time.

Even at DEFCON 3, the GTS expectation for the Debt Ceiling fight to start soon is causing me to be overly paranoid for this week’s trades. 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 > 90%
  • Spread term of 8-weeks or less







Profit and Loss Statement

(As of 11/19/2021)

Balance Sheet

Year
2021
Month
Nov
Week
#46
Beginning Account Balance$16,000.00$20,329.53$20,489.60
Deposits (Div. & Int.)$1.45$0.19$0.0
Withdraws (paycheck)-$3,000.00-$0.00-$0.00
Premiums on Open$8,713.01$309.00$73.00
Premiums on Close-$1,113.00-$70.00-$0.00
Fees Paid (total)-$111.86-$7.14-$1.02
Ending Account Balance$20,561.58$20,561.58$20,561.58
Total Gain/Loss$4,561.58$232.05$71.98
ROR1.1%0.4%
ROC28.5%

Progress Graph

YOD Vertical Options Spreads Running P&L – As of 11/19/21

(Note: 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$8,787.46
(Premiums)
0.45 shares
(Dividends Reinvested)
Funds Removed-$1,225.88
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$23,561.58
(Cash)
$20,533.99
(43.83 shares * $468.47 CV)
ROI+47.3%+28.3%
As of 11/18/2021







Schedule for this Week

Goals for this week: (11/15/2021 – 11/19/2021) (Week #46)

  • 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: Jan 07 2022 (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 11/19/2021)

Spread Count Summary:

Year
2021
Month
Nov
Week
#46
Vertical Bull Put Credit Spread7831
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total7931

Current Dollars at Risk:

Year
2021
Month
Nov
Week
#46
Vertical Bull Put Credit Spread$13,332.$7,691.$2,927.
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$13,332.$7,691.$2,927.
Max Risk Allowed$16,000.N/A$3,000.







Vertical Spreads Opened This Week

(11/15/2021 – 11/19/2021)

SPY: 420p/390p  – Open 11/18/21 – Expires 12/23/21 – Max Gain = $0.73 – Open Price = $469.01
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=91.1%, Headroom-10.4%, Max Loss=$2,927, AROR=27.7%

ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 420 Put – Long: 390 Put
ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 420 Put – Long: 390 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? Yes ($13,332)
  • Max dollar at risk this week < $3,000? Yes ($2,927)
  • 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)? No (1.0 up 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=$443.17)
  • Short-strikes Prob-OTM > 90%? Yes (91.1%)
  • 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 (30 strike width)

I and being hyper-cautious entering into new vertical Spreads. This position was opened with a greater than 90% Probability of OTM and with the Short Strike more than 10% below the current SPY value.

I am believing that there will be some rough market times during the duration of this position.

Vertical Spreads Currently Cooking

(As of 11/12/2021)

QQQ: 340p/310p  – Open 11/11/21 – Expires 12/31/21 – Max Gain = $1.15- Open Price = $391.45
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=88.6%, Headroom-13.1%, Max Loss=$2,886, AROR=28.6%
Now: Prob. OTM=90.8%, Headroom=-13.9%

SPY: 425p/405p  – Open 11/03/21 – Expires 12/17/21 – Max Gain = $1.18- Open Price = $461.10
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.6%, Headroom-7.9%, Max Loss=$1,882, AROR=51.6%
Now: Prob. OTM=89.8%, Headroom=-9.0%

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%
Now: Prob. OTM=92.3%, Headroom=-12.6%

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%
Now: Prob. OTM=92.6%, Headroom=-9.0%

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=95.0%, Headroom=-9.9%

Vertical Spreads Closed This Week

(As of 11/19/2021)

No Vertical Spreads closed this week.







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.”