A Vertical Spread Mission Statement for 2022 needs to be my recited verse! And it needs to be in front of me every trading day.

The goal for you,
I’ll recite in verse.
Return the jewel

and lift the curse.
If you wish to leave the game.
You must save Jumanji,

and call out its name.

– Nigel Billingsley (Movie: Jumanji: Welcome to the Jungle)

2022 Vertical Spread Mission Statment

Nigel Billingsley

One of the most important tasks all home business owners must do is to develop a meaningful Mission Statement and keep it updated every year. And we all need an NPC like Nigel to constantly repeat the statement every trading day.

With only three weeks left in 2021, I need to wrap up this year and set budgets and goals for 2022. Last week’s post “My Income Selling Vertical Put Credit Spreads” enumerated my performance for this year – so that part is done. This week I will renew my Mission Statement and set goals for next year. Next week’s post will publish details for my 2022 trading budget and schedule. Then, on the final week of the year, I will be busy celebrating my God, my country, and my family.

Know Where Your’re Going, By Knowing Where You’ve Been

In this journal entry, I need to look back over the past four years and judge if I’m moving in the right direction. If I judge not, then I need to reassess and make changes. But if I feel good about my direction, then I need to narrow my focus and pinpoint my goals.

The past four years took me from a total newb in Options Trading to a Tattered Trader (I wanted to say Wounded Warrior, but I did not want to diminish the effectiveness that moniker already has). At this point, I would consider myself reasonably experienced (but always a long way to go).

2018 (when I retired), my journey started with mostly paper trades, bookwork, and quirky starts. In 2019, I sacrificed thousands of dollars to the trading-gods of stupidity. 2020 gave me an education in trading Stock Options during troubled markets (COVID and the presidential election). And 2021 was the year I was able to put a lot of experience into practice.

I have documented the entries (and why) and exits (and results) of over 1,276 Options positions. I wrote out every bonehead mistake I made and tried to explain those forehead-slapping epiphanies. I did all this in 124 weekly posts to my trading journal, OptionsTradesByDamocles.com

In conclusion, I am happy with the direction this project is taking me.

Mission Statement

As a retiree, I sought to create a work-from-home business plan that can progressively (reasonably guarded) augment my income, keep me engaged in public affairs, and pursue activities that I consider interesting and fun.

2022 Mission Statement

Expand on a profitable, work-at-home business endeavor of trading lost-resistant Stock Options contracts by pursuing a deeper understanding of Vertical Credit Spreads.

What you need is in the basket.
One false move, you’re in a casket.
Trust one another, and never blink.
The missing piece is not what you think.

– Kid from Bazzar (Movie: Jumanji: Welcome to the Jungle)

Goals for 2022

To achieve my 2022 Mission, I will focus on the following goals:

Primary

  1. Collect enough in monthly premiums to allow me to widthdraw a salary on the last Friday of each month
  2. By the end of 2022, have more money in my Trading Account than when I started
  3. By the end of 2022, be able to say that I did better selling Vertical Credit Spreads than I would have done if I simple invested the same amount in an Index ETF as a buy-and-hold investment.

Secondary

  1. Expand on my Options Trading knowledge with new strategies
  2. Stay aware of our sociopolitical-economics (ecopolitical) issues that affects my performance
  3. Maintain OptionsTradesByDamocles.com Trading Journal
  4. Be systematic – not emotional
  5. Most importantly, love life!

Don’t cry! Don’t cry!
Everything’s going to be okay.

Dr. Smolder Bravestone (Movie: Jumanji: Welcome to the Jungle)
Dr. Smolder Bravestone

As a side goal, in 2022 I plan to start a new project that should take considerable time. Even though I intend to keep the pace of selling multiple Vertical Bull Put Credit Spreads weekly as a home-business income, I do expect to eventually reduce the frequency of posting my Trade Journal from weekly to just monthly.


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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 12/05/2021)

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.

economic-political Tree-Shakers (ETS):

Ecopolitical 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.

ETS 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 ETS can significantly disrupt all the other indicators at the drop of a hat.

  • New Inflation Rate number to come out this Friday (CPI)
  • New jobless claims plunged to 50 year low
  • Feds to increase pace of tapering at December’s meeting
  • Congress’ Continuing Resolution (CR) kicks Debt Ceiling battle to mid Feb
  • No threat of Federal default for the next 8-12 weeks.
  • Nov. payroll growth was strong, but few are coming back off the sidelines
  • New COVID varient Omicron
  • Debating the $1.9 trillion Build Back Better bill
  • End of year Federal budgets marithon
  • Rising posibility of higher interest rates sooner than later

Continually rising inflation is motivating the Federal Reserve to kick up tapering a couple of notches. This month’s Fed meeting is expected to raise the alarm on inflation which is surely going to annoy the Marketeers. Fed President Bullard wants asset buying to end during the first quarter of 2022 so interest rate hikes can start.

Omicron may not be as catastrophic as the media hoped it would be (they can’t get clicks if they can’t say the “world is coming to an end”). Pulling back from the fear of renewed lockdowns will help the markets gain some speed.

Congress easily passed a bipartisan Continuing Resolution that will stave off any threat of Federal default until the middle of Feb. This CR continues funding of the government via 2021’s budget limits. This alone should take a lot of pressure off the markets.

Supply chain bottlenecks are easing and will continue to do so through the first quarter of 2022, although it will be a continuous hindrance through 2022.

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. But I am seeing signs that a post-pandemic economy is starting to take a hole.

GTS votes a DEFCON 4

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) - 12/05/2021
ThinkorSwim Chart: CBOE Market Volatility Index (VIX) – 12/05/2021

The trajectory for the 1-month VIX Regression Channel screams selloff. The VIX ended last week at 30.7%, up from 28.6% 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. But I will watch this indicator closely during this week, as early analysis of Omicron is released.

With the VIX over 30, and on a trajectory of increasing volatility, I will vote a DEFCON level 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 12/05/21
ThinkorSwim Chart: S&P 500 Put/Call Ratio – as of 12/05/21

The S&P 500 Put/Call Ratio took a wild ride over the past week. Although I am not buying the fact that the ratio fell to 0.1 the week before, the high jump to over 0.8 does look reasonable in light of the Omicron stories. At this point, I can only say there is a high degree of uncertainty in market direction as of 12/05/21.

A Put/Call Ratio above 0.8 is still in the Good Shape territory (under 1.0). But the aggressive trajectory up is throwing a flag to get careful. At the beginning of this week, it looks as if all roads are moving to more selloffs.

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 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.

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) = 34,580 – down 0.9% from 34,899 last week. (4 weeks deviation: 690 hugely up from 323 last week)
S&P 500 (SPX) = 4,538 – down 1.2% from 4,595 last week. (4 weeks deviation: 58.92 down from 33.86 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 12/05/2021)
ThinkorSwim Chart: Daily S&P 500 Index – Four Months Trend (Updated 12/05/2021)

Market Thrashing

4 Weeks Thrashing of DJX = +/- 690 points or 2.0% of the market’s volume is way up from 0.9% last week.
4 Weeks Thrashing of SPX = +/- 58.92 points or 1.3% of the market’s volume is down from 0.7% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)

The 4-week market thrashing took a sharp turn up as the broader market’s value took a sharp turn down. What appears to be a lot more selling than buying towards the end of the 4-week trend, the Marketeers look to be searching for a market direction. And since the Marketeers hate uncertainty, the down is the apparent direction.

Since the reporting of the Omicron variant, I have seen one kneejerk reaction after another. The S&P 500, after hitting an all-time high just prior the Thanksgiving, has fallen over 3.5%.

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 showing mixed content, both good and bad – DEFCON 4
  • The VIX shot up over 30% – cautious DEFCON 3
  • The P/C Ratio shot up over 0.8 – cautious 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

I still think that December is going to test my resolve, but a turnaround with the GTS is suggesting that a lowering of temperature is up ahead.

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.

At DEFCON 3 I need to hold tight on my entry rules, but maybe not as tight as the last couple of weeks. 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 > 85%
  • Spread term of 8-weeks or less

Note: This week, I only have enough unallocated cash for one 10-Strike wide Vertical Spread. This risk limit is going against my desire to only enter into loss-resistant Vertical Spreads.







Profit and Loss Statement

(As of 12/10/2021)

Balance Sheet

Year
2021
Month
Dec
Week
#49
Beginning Account Balance$16,000.00$20,342.72$20,425.70
Deposits (Div. & Int.)$1.61$0.00$0.0
Withdraws (paycheck)-$3,300.00-$0.00-$0.00
Premiums on Open$9,047.01$179.00$95.00
Premiums on Close-$1,118.00-$5.00-$5.00
Fees Paid (total)-$116.99-$3.09-$2.07
Ending Account Balance$20,513.63$20,513.63$20,513.63
Total Gain/Loss$4,513.63170.91$87.93
ROR0.8%0.4%
ROC28.2%

Progress Graph

YOD Vertical Options Spreads Running P&L - As of 12/10/21 (Excel Chart)
YOD Vertical Options Spreads Running P&L – As of 12/10/21 (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$9,048.42
(Premiums)
0.45 shares
(Dividends Reinvested)
Funds Removed-$1,234.99
(Early Close & Fees)
$0
(Fractional Shares Sold)
Ending Balance$23,813.63
(Cash)
$20,493.29
(43.83 shares * $467.54 CV)
ROI+48.8%+28.1%
As of 12/10/2021







Schedule for this Week

Goals for this week: (12/06/2021 – 12/10/2021) (Week #49)

  • 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 28 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 12/10/2021)

Spread Count Summary:

Year
2021
Month
Dec
Week
#49
Vertical Bull Put Credit Spread8121
Vertical Bear Call Credit Spread000
Vertical Bull Put Debit Spread000
Vertical Bull Call Debit Spread000
Margin Interest100
Total8221

Current Dollars at Risk:

Year
2021
Month
Dec
Week
#49
Vertical Bull Put Credit Spread$16,308.$3,821.$1,405.
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$16,308.$3,821.$1,405.
Max Risk Allowed$16,000.N/A$3,000.

This week I exceeded the max budget so to have a little loss-resistance to this week’s Spread.







Vertical Spreads Opened This Week

(12/06/2021 – 12/10/2021)

IWM: 195p/180p  – Open 12/09/21 – Expires 01/21/22 – Max Gain = $95.00 – Open Price = $222.37
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.0%, Headroom-12.3%, Max Loss=$1,405, AROR=56.8%

ThinkorSwim Chart: Vertical Bull Put Credit Spread – IWM – Short: 195 Put – Long: 180 Put
ThinkorSwim Chart: Vertical Bull Put Credit Spread – IWM – Short: 195 Put – Long: 180 Put

Entry Rules for Vertical Bull Put Credit Spreads:

  • Current maximum dollars at risk < $16,000? No ($16,308)
  • Max dollar at risk this week < $3,000? Yes ($1,405)
  • 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)? No (1.2 up from 0.6)
  • Current price above 9-Day SMA?: Yes (see chart)
  • 9-Day SMA above 50-Day SMA?: No (see chart)
  • Short-strike > 1 SD below the current price? Yes (1SD=$204.15)
  • Short-strikes Prob-OTM > 85%? No (84.0%)
  • 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)

The budgeted cash to have at risk was about $1,100 going into this week. This amount would only afford me a 10 Strike-Wide Spead.

Vertical Spreads Currently Cooking

(As of 12/10/2021)

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%
Now: Prob. OTM=82.3%, Headroom=-13.9%

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=80.6%, Headroom=-8.5%

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=83.7%, Headroom=-11.3%

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=80.6%, Headroom=-7.4%

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=80.4%, Headroom=-6.3%

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=87.2%, Headroom=-10.0%







Vertical Spreads Closed This Week

(As of 12/10/2021)

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%
At Close: Prob. OTM=98.3%, Head Room=-8.6%, AROR= 61.3%

Cost to open: $1.01premium collected * 100 shares = $101.00
Cost to close: $0.05 premium paid * 100 shares = $5.00 (closed worthless)
Net Profit= $101.00 to open – $5.00 to close – $2.00 fees = $94.00
AROR= ($94.00 / 40 days in play) *365 / $1,399 = 61.3%

This position was closed 3 days early via a $.05 trade trigger.

Actually, I forgot this trigger was active and should have deleted it last week. So, my inattentiveness cost me $6.02.

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.”