This week is a time for personal reflection and giving thanks to all who help make this year successful.

Give Thanks

Historic Thanksgiving

This week is a time for personal reflection and giving thanks to all who help make this year (and this country) successful. So, this week, I have little to pontificate other than this sincere sentiment.

I believe December will be a market disappointment as our national news will fixate on the acrimonious debates in the Senate. With the Build Back Better, Debt Ceiling, the threat for rising interest rates, resurgents of COVID, and a myriad of necessary appropriation bills coming to a head, there’s going to be a lot of sparks flying. PLUS, an Inflation muffled Holiday buying season, is going to hit the retail sector fairly hard.

So I will continue to be very, VERY, conservative this week as I Trade Trudge just one new Option Vertical Spread position.

I will also spend some time making some basic web tweaks in preparation for 2022.

Other than this… Please have a great Thanksgiving!


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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 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
  • New COVID variant will stoke fears of new lockdowns

President Biden said Tuesday that he will pick a Fed Chief by last Friday. But his puppeteers changed the script and suggest that a decision will be made before Thanksgiving (which is this coming Thursday). If Biden does not pick Powell for a second term, I would expect a Marketeer tantrum.

The Build Back Better social spending bill is now ground zero for a bitter partisan battle. And it is now queued up with a marathon of other reauthorization bills that the Senate must pass before the end of the year. And, on top of that, the Debt Ceiling is still unresolved. I am still expecting a contentious December that will certainly try the patience of the Marketeers.

The number of COVID deaths in 2021 surpassed all of 2020 this month and a new variant popped up in South Africa. So why isn’t there a national hysteria, new rounds of national lockdowns, and school closers? Oh, that’s right – we are not trying to oust a president (see post the COVID-CON).

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) - 11/21/2021
ThinkorSwim Chart: CBOE Market Volatility Index (VIX) – 11/21/2021

The trajectory for the 1-month VIX Regression Channel continues a turn north – increasing volatility. The VIX ended last week at 17.9%, up from 16.3% 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 11/21/21
ThinkorSwim Chart: S&P 500 Put/Call Ratio – as of 11/21/21

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

Unchanged from last week, this dismal level of Consumer Sentiment suggests that out-of-control inflation is taking a toll on Thanksgiving week. There does not seem to be much confidence that the current budget battles in Congress will help – most like hurt.

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.

Similar to the CSI matric is the Misery Index. Going forward, I will include the Misery Index in this section.

The Misery Index = Inflation rate + Unemployment rate. What the MI actually is may not be that relevant. But monitoring if it is rising or falling could be. And if the MI falls below 7, then it may not be relevant at all.

This week’s Misery Index = Inflation rate (6.22% as of Oct 31) + Unemployment rate (5.44% as of Oct 31) = 11.7%. Updated rates will be released on Nov 30. The question is if is going up or down, and how fast.

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) = 35,602 – down 1.4% from 36,100 last week. (4 weeks deviation: 327 down from 571 last week)
S&P 500 (SPX) = 4,698 – up 0.3% from 4,683 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 11/21/2021)
ThinkorSwim Chart: Daily S&P 500 Index – Four Months Trend (Updated 11/21/2021)

Market Thrashing

4 Weeks Thrashing of DJX = +/- 244 points or 0.7% of the market’s volume is lower from 0.9% last week.
4 Weeks Thrashing of SPX = +/- 52.67 points or 1.1% of the market’s volume is down from 1.5% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)

The 4-week market thrashing continues to inch downward week after 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 is on the rise, but still below 20% – cautious DEFCON 4
  • The P/C Ratio shows litle consern – 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 tumultuous market in December as Congress fight through the confluence of raising the debt ceiling, passing the Build-Back-Better Spending bill, and the slew of other must-pass appropriation bills. The possibility of a government shutdown looms high, and that will send my Vertical Spreads towards ITM.

This week’s Market Sentiment continues to show a cautious DEFCON 4 level, because of these indicators. But 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 11/26/2021)

Balance Sheet

Year
2021
Month
Nov
Week
#47
Beginning Account Balance$16,000.00$20,329.53$20,561.58
Deposits (Div. & Int.)$1.45$0.19$0.0
Withdraws (paycheck)-$3,300.00-$300.00-$300.00
Premiums on Open$8,868.01$391.00$82.00
Premiums on Close-$1,113.00-$70.00-$0.00
Fees Paid (total)-$113.90-$8.16-$1.02
Ending Account Balance$20,342.56$20,342.56$20,342.56
Total Gain/Loss$4,342.5613.03-$219.02
ROR0.1%-1.1%
ROC27.1%

Progress Graph

YOD Vertical Options Spreads Running P&L - As of 11/24/21 - Excel Chart
YOD Vertical Options Spreads Running P&L – As of 11/24/21 (Excel Chart)

(Note: the negative weekly results for weeks 4, 8, 12, 17, 21, 25, 30, 34, 38, 43, and 47 are when I withdrew $300 from the Trading Account for my paycheck.)

Performance Note: Vertical Bull Put Credit Spreads opened during the month of November were super-conservative (85% to 90% or more Prob-OTM). This strategy is in response to what I believe will be a very market-negative month of Dec or even Jan (due to budget/debt ceiling debates in the US Senate). Super-conservative Spreads carry very little premiums, thus my November income was only $391 minus fees and my $300 monthly paycheck left only $13.03.

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$8,869.46
(Premiums)
0.45 shares
(Dividends Reinvested)
Funds Removed-$1,226.90
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$23,642.56
(Cash)
$20,378.82
(43.83 shares * $463.83 CV)
ROI+47.8%+27.4%
As of 11/23/2021







Schedule for this Week

Goals for this week: (11/21/2021 – 11/26/2021) (Week #47)

  • 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 14 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
#47
Vertical Bull Put Credit Spread7941
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total8041

Current Dollars at Risk:

Year
2021
Month
Nov
Week
#47
Vertical Bull Put Credit Spread$16,250.$10,609.$2,918.
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$16,250.$10,609.$2,918.
Max Risk Allowed$16,000.N/A$3,000.

This week I exceeded the max budget by not paying attention.







Vertical Spreads Opened This Week

(11/22/2021 – 11/26/2021)

SPY: 415p/385p  – Open 11/23/21 – Expires 12/31/21 – Max Gain = $82.00 – Open Price = $468.17
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=90.3%, Headroom-11.3%, Max Loss=$2,918, AROR=26.7%

ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 415 Put – Long: 385 Put
ThinkorSwim Chart: Vertical Bull Put Credit Spread – SPY – Short: 415 Put – Long: 385 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? No ($16,250)
  • Max dollar at risk this week < $3,000? Yes ($2,918)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (38 days)
  • Long-term trend (four months) bullish? Yes (see chart)
  • Short-term trajectory of the underlying bullish? No (see chart)
  • Put/Call Ratio < 1, (or falling if it is > 1)? No (1.5 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=$434.74)
  • Short-strikes Prob-OTM > 90%? Yes (90.3%)
  • 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 am hyper-cautious entering into new vertical Spreads that will span across December. 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 believe there will be some rough market times during the duration of this position.

Vertical Spreads Currently Cooking

(As of 11/26/2021)

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=93.3%, Headroom=-15.8%

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%
Now: Prob. OTM=90.9%, Headroom=-10.4%

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=90.0%, Headroom=-9.4%

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=94.8%, Headroom=-14.6%

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=93.9%, Headroom=-9.4%

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=96.5%, Headroom=-9.4%







Vertical Spreads Closed This Week

(As of 11/26/2021)

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.”