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This year, I made over 48% profit (income) by selling Vertical Put Credit Spreads as a home business – which is nearly double my buy/hold investment strategy. This week’s Journal Entry will list several of my most important posts detailing how this was achieved.

Was it Worth It?

Small sword, small steps, best chance of winning.
Bilbo Baggins

December has trumbled in, and 2021 is about to give way to 2022. So now I need to weigh up my year’s effort of making a sustained income from selling Vertical Bull Put Credit Spreads. I need to assess if my efforts were worthwhile and if I want to continue this adventure into 2022.

For me to say if this year’s effort was worth it, I needed an ROI from my trading account that would match (or better) the Broader Markets. After all, if I can do just as good or better from a buy-and-hold strategy with an Index ETF, then why all the bother.

In addition to the ROI, I also need a monthly salary commensurate with the initial investment. Taking this salary cannot reduce the targeted ROI.  This salary (monthly) is fundamentally the point of this project.

So how did I do in 2021:

Commentary Contents

As a Home Business

As a home business, I need to show a profit at the end of the year. Below is my 2021 Balance Sheet as of 11 months and 1 week (48 weeks). (I still have 3 more weeks of selling Vertical Spreads.)

Balance Sheet

Year 2021
Beginning Account Balance$16,000.00
Deposits (Div. & Int.)$1.61
Withdraws (11 * $300 paychecks)-$3,300.00
Premiums on Open$8,955.01
Premiums on Close-$1,113.00
Fees Paid (total)-$114.92
Ending Account Balance$20,428.70
Total Gain/Loss$4,428.70
ROI27.7%
As of 12/03/2021

Monthly Paycheck

After some calculations, I decided to charge my trading account a 22.5% fee as payment for my weekly trading efforts (which wasn’t much effort). So, from the original $16,000 investment, the yearly fee was $16,000 * .225 = $3,600 or $300 per month.

On the last Friday of every month, I transferred $300 out of my trading account as a scheduled paycheck. This transfer was made regardless of my success or failure for that month. After eleven months, I have now paid myself $3,300.

$300 per month is far from a “living wage.” But it is not the salary amount that I focus on, but the percentages from the initial investment. Everything is scalable.

As an Investment

Working for myself is pretty nebulous. But if I had just invested the $16,000 in an Index ETF, would I have done better? This project would fail if I could make more money with a simple buy-and-hold ETF investment. So to find out, I compared my Options Trading efforts to a $16,000 investment in a hypothetical ETF SPY.

Trading Account Vs Hypothetical Buy/Hold SPY

Options Trading
Account
SPY
(Fictional)
Initial Investment
(As of Jan 4, 2021)
$16,000
(Cash)
$16,000
(43.39 shares @ $368.55)
Funds Added$8,956.62
(Premiums)
0.45 shares
(Dividends Reinvested)
Funds Removed-$1,227.92
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$23,728.70
(Cash)
$20,115.83
(43.83 shares * $458.93 CV)
ROI+48.3%+25.7%
As of 12/03/2021

Income Selling Vertical Credit Spreads

As a home business,
can I make a sustainable income selling Vertical Bull Put Credit Spreads?

For 2021, my answer is yes.
But it was not done with risky trades, speculative market timing, or following the “hunch.” I made income selling Vertical Spreads this year by taking small and methodical steps.

The idiom of “two steps forward and one step back” is fine,
unless I am one step away from a cliff edge.

Being successful at selling Vertical Bull Put Credit Spreads requires me to be aware of the effects of probabilities. And using probabilities alone cannot win (see Law of Large Numbers). So the entirety of my Options strategy is to manipulate probabilities in my favor.

Below are my best posts over the years on how to better my chances of winning at Vertical Spreads:

And the road goes on!

– Bilbo

Using Excel with ThinkorSwim
Walking through steps of installing thinkorswim on a new laptop and how to get Excel to pull live data …
How To Make Loss Resistant Vertical Spreads – Strike Width
In this week's journal entry, I want to look at what makes a Loss-Resistant Vertical Spread. Starting with a …
Vertical Spread Assignments – The Good The Bad and the Ugly
At what point do I need to sell an ITM Spread early for a loss or just let the …

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.

  • New COVID varient Omicron
  • Holiday buying a bust
  • Debating the $1.9 trillion Build Back Better bill
  • End of year Federal budgets marithon
  • The Federal Debt Ceiling is yet to be resolve – expect heated battles
  • Inflation rises to new highs
  • Rising posibility of higher interest rates sooner than later

Friday’s Stock Market was rocked by a kneejerk reaction to a new highly contagious COVID variant. And the Monday morning’s recovery may just be another kneejerk buyback reaction. But I am seeing this market movement as the beginning of a December selloff. There is too much pressure on the markets to maintain exuberant buy signals.

October home sales were higher and I will expect that November’s pending home sales will increase as well. With the threat of rising interest rates, I would expect big-ticket increases.

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

The trajectory for the 1-month VIX Regression Channel skyrocketed after the Friday Omicron selloff. The VIX ended last week at 28.6%, way up from 17.9% the week before.

Today’s VIX shouted concern as the news from the new Omicron variant came out. On top of that, performance returns from Black Friday were down, the Inflation Rate is up and a buildup for an epic congressional budget battle is coming.

With the VIX over 20, I am torn between a super cautious DEFCON 4 or an aggressive DEFCON 3

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.

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 dropped to an unexpected 0.1 over the Thanksgiving holiday. Especially after the horrific Friday selloff, this seems a bit unreasonable. So for this week, I will ignore this indicator.

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 11/28/2021

With a slight tilt upward, November’s final CSI is still mostly dismal. But since this was published, the Omicron variant was announced this past Friday, and most everything went negative.

Misery Index

The actual value of the current Misery Index may not be that relevant. But monitoring if it is rising or falling could be. Once the MI falls below 7, then it may not be relevant at all.

I’m going to start monitoring MI as a sub-component of CSI.

Misery Index (MI) = Inflation rate + Unemployment rate.

DateInflation RateUnemployment RateMisery Index
11/216.25.5%?11.7%
11/296.2%4.6%10.8%

The MI fell from last week, but I question the accuracy of what I am doing at this point. I need to work on this table for a few weeks until I can get it reliable.

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

CSI votes a DEFCON 3

Market Indexes:

DOW (DJX) = 34,899 – down 2.0% from 35,602 last week. (4 weeks deviation: 323 down from 327 last week)
S&P 500 (SPX) = 4,595 – down 2.2% from 4,698 last week. (4 weeks deviation: 33.86 down from 68.78 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 11/28/2021)
ThinkorSwim Chart: Daily S&P 500 Index – Four Months Trend (Updated 11/28/2021)

Market Thrashing

4 Weeks Thrashing of DJX = +/- 323 points or 0.9% of the market’s volume is up from 0.7% last week.
4 Weeks Thrashing of SPX = +/- 33.86 points or 0.7% of the market’s volume is down from 1.1% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)

The 4-week market thrashing continues below 1%, suggesting that the Marketeers have some confidence in the current market direction. And since last Friday’s Omicron Variant was announced, the markets took a deceive stop off the cliff. The Marketeers still need additional Omicron information to digest, but when I add this to the other GTS issues, I believe that this coming week will be negative.

Being blind to all other indicators and just looking at current market trends I will continue to vote for DEFCON 3.

Market Index votes a DEFCON 3

My sentiment for this coming week:

Of the five indicators:

  • The GTS is continues to show kneejerkable content – DEFCON 3
  • The VIX is on the rise, but still below 20% – cautious DEFCON 3
  • The P/C Ratio had an unexpected reaction – 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 3

The month of December will continue 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.

The confluence of Omicron, rising inflation, rising interest, divided Congress, and overinflated market values is teeing up an interesting two months.

Trading Readiness Level for this week

DEFCON =3

This week, I will focus on:

I am expecting an epic Senate battle in December that will turn the markets sour. 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 12/03/2021)

Balance Sheet

Year
2021
Month
Dec
Week
#48
Beginning Account Balance$16,000.00$20,342.72$20,342.72
Deposits (Div. & Int.)$1.61$0.00$0.0
Withdraws (paycheck)-$3,300.00-$0.00-$0.00
Premiums on Open$8,955.01$87.00$87.00
Premiums on Close-$1,113.00-$0.00-$0.00
Fees Paid (total)-$114.92-$1.02-$1.02
Ending Account Balance$20,428.70$20,428.70$20,428.70
Total Gain/Loss$4,428.7085.98$85.98
ROR0.4%0.4%
ROC27.7%

Progress Graph

Damocles' YOD Vertical Options Spreads Running P&L - As of 12/03/21 (Excel Chart)
YOD Vertical Options Spreads Running P&L – As of 12/03/21 (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.)

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$8,956.62
(Premiums)
0.45 shares
(Dividends Reinvested)
Funds Removed-$1,227.92
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$23,728.70
(Cash)
$20,115.83
(43.83 shares * $458.93 CV)
ROI+48.3%+25.7%
As of 12/03/2021







Schedule for this Week

Goals for this week: (11/29/2021 – 12/03/2021) (Week #48)

  • 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 21 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 12/03/2021)

Spread Count Summary:

Year
2021
Month
Dec
Week
#48
Vertical Bull Put Credit Spread8011
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total8111

Current Dollars at Risk:

Year
2021
Month
Dec
Week
#48
Vertical Bull Put Credit Spread$16,299.$2,413.$2,413.
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$16,299.$2,413.$2,413.
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

(11/29/2021 – 12/03/2021)

QQQ: 330p/305p  – Open 12/01/21 – Expires 01/21/22 – Max Gain = $87.00 – Open Price = $399.23
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=91.4%, Headroom-17.4%, Max Loss=$2,411, AROR=26.0%

ThinkorSwim Chart: Vertical Bull Put Credit Spread – QQQ – Short: 330 Put – Long: 305 Put
ThinkorSwim Chart: Vertical Bull Put Credit Spread – QQQ – Short: 330 Put – Long: 305 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? No ($16,299)
  • Max dollar at risk this week < $3,000? Yes ($2,413)
  • Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (51 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 (1.6 up from 0.9)
  • 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=$330.18)
  • Short-strikes Prob-OTM > 90%? Yes (91.4%)
  • 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)
  1. This is a high probability of OTM Vertical Spread. Beyond a >90% Prob-OTM, the Short Strike is more than 17% below the opening price of the QQQ Underlying. This configuration is technically correction-proof. Believing that December is going to be a downer, this Spread may not be unreasonable.
  2. The Implied Voltility (IV) = 45.9% which puts it at the very top of the chart. The IV% = 100% yeilding the max premium availabe.

Vertical Spreads Currently Cooking

(As of 12/03/2021)

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%
Now: Prob. OTM=88.2%, Headroom=-10.4%

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=93.0%, Headroom=-14.7%

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=89.0%, Headroom=-9.4%

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=89.6%, Headroom=-8.3%

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=95.4%, Headroom=-13.6%

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=94.2%, Headroom=-8.3%







Vertical Spreads Closed This Week

(As of 12/03/2021)

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%
At Close: Prob. OTM=99.5%, Head Room=-8.4%, AROR= 49.6%

Cost to open: $1.36 premium collected * 100 shares = $136.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (closed worthless)
Net Profit= $136.00 to open – $0.00 to close – $1.00 fees = $135.00
AROR= ($135.00 / 42 days in play) *365 / $2,364 = 49.6%

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.”