My 2021’s end-of-year trading account cash value from selling Vertical Credit Spreads = $24,343.58. This is 52.1% ROI over my start of year $16,000 investment. This beats the 30.8% ROI from an equal investment in ETF/SPY.
You cannot know
where you’re going,
if you don’t know
where you’ve been.
2021 Performance Review
2021 is over and it is now time to fess up.
This week’s short journal entry is my 2021 Performance Review for selling Vertical Bull Put Credit Spreads for income.
Commentary Contents
Restating My 2021 Goals
- Collect enough in monthly premiums to allow me to widthdraw a $300 pay check on the last Friday of each month.
- By the end of 2021, have more money in my Trading Account than when I started.
- By the end of 2021, 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.
How Did I Do On My Goals?
2021 Goal 1 – Success
Every month, I collected more premium from selling Vertical Spreads than what was required for a paycheck. I transferred $300 out of my trading account each month for a total of $3,600 for the year. The $300/month compensation was based on 22.5% of the initial investment ($16,000 * .225 / 12 = $300).
2021 Goal 2 – Success
2021 began with an initial investment of $16,000 cash in my trading account. On Dec 31, 2021, my trading account cash balance was $20,743.58 (even with the $300/month pay withdrawals). This is a gross cash profit of $4,743.58 (29.6%) over the starting balance.
2021 Goal 3 – Success
Strategy 1 – Selling Vertical Spreads
My 2021’s total return from selling Vertical Credit Spreads = $24,343.58 ($16,000 starting cash balance + $8,463.01 premiums collected + $1.61 interest received – $121.04 fees paid to Ameritrade). This makes my net ROI over my initial $16,000 investment 52.1% (($8,463.01 + $1.61 – $121.04 ) / $16,000).
Strategy 2 (Hypothetical) – ETF/SPY Investment
Instead of selling Vertical Credit Spreads, if I started the year buying $16,000 worth of the S&P 500 Index ETF SPY, and held on to it through the year, could I have done better?
Buying $16,000 worth of SPY, I would start the year with 43.385124 shares at $368.79/share (SPY price on 01/02/21). Reinvesting all dividends throughout the year, my end-of-year share count would be 43.385124 + .59 reinvested dividends = 43.975124 shares of SPY.
The EOY price of SPY (12/31/21) = $476.29. Net investment value = $20,944.91 (43.975124 shares * $476.29). This increase represents a ROI of 30.9% (20,944.91 – $16,000 / $16000).
Comparing The Two Strategies
| Strategy 1 Selling Vertical Spreads | Strategy 2 (hypothetical) ETF/SPY Investment | |
| Beginning Value | $16,000 | $16,000 |
| Ending Value | $24,343.58 | $20,944.91 |
| ROI | 52.1% | 30.9% |
| Monthly Withdrawals | $300 | $0 |
| Results | WINNER |
Some Statistics
| # of Vertical Credit Spreads sold in 2021 | 85 Spreads (170 individual Options Contracts) |
| Win/Loss % | Win = 97% Loss = 3% |
| Average Spread duration (days to expiration) | 34.1 days |
| Average dollar risk per Spread | $2,214.50 |
| Average Premium collected per Spread | $112.77 |
Will 2022 Be As Good As 2021?
Even with COVID still making headlines, scarry spending bills in Congress, a sorry partisan divide across the country, this year ended pretty good. But this year is not typical. Following the 2020 lockdowns, the collapse of our supply chain, and the shuttering of public businesses, Americans had to do what Americans do best – innovate. So this past year, we saw companies scramble to do things differently, open up new revenue streams and become more productive.
This year also saw a seismic growth in new online trading. New trading apps (like Robinhood, Acorns, and Stash) open the Stock Market door to a whole new generation of investors. And people stuck at home started online trading as well. So 2021 saw a lot of new cash flow into the markets.
Will 2021’s rising cash tide continue in 2022? I believe it will.
Other Posts from Options Trades By Damocles
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.
ecopolitical Tree Shakers:
Ecopolitical (Sociopolitical-Economics) Tree Shakers (ETS) 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.
- Omicron is surging, but appears flu-like managible.
- Mixed responses to Joe Manchin killing Build Back Better
- Feds increased pace of tapering at December’s meeting – expect early start to aggresssive rise in interest rates
- Is the year-long market rally sustainable
The Omicron variant has clogged the holiday’s air traffic with canceled flights caused by a significant reduction in air-support staff. But the national news is not clarifying if the lack of staff is because high infection rate amongst the airliner’s employees, or because of the reduced staff caused by the vaccine mandates. Regardless, Omicron has not but too much of a damper on Christmas travelers. Airline passenger numbers now rivals 2019.
The S&P 500 started 2021 with the year’s 52-week low of 3,700.65, and it ended at the year’s 52-week high of 4,725.79. This is a 1,025.14 point increase or nearly 28% bounce for the year. This stellar rise follows a 16.5% rise during 2020 (including the COVID Crash) and a 27.8% growth for 2019.
The question that many have asked me, is this sustainable? My feeling is yes to the growth, and no to the rate-of-growth.
The US economy is a growth-oriented financial system. Profitable corporations are required to feed the Federal Government with corporate taxes and personal income taxes. So I do see 2022 continuing the bull market. But the inevitable rasing of the Federal Discount Interest Rate early in 2022, and the continued bite of Inflation will put significant pressure on profits and may flatten the past two year’s growth curve.
The COVID pandemic has been a significant ETS over the past two years. I’m assuming that 2022 will see the pandemic move to an endemic. Omicron will certainly be followed by new variants, but hopefully (like Omicron) will eventually peter out.
I also expect the fearmongering to ratchet up as the 2022 mid-term elections start to heat up. But I feel better about the next 6-8 weeks than I did a couple of weeks ago. So, with a lack of short-term ETS, I will vote a DEFCON 4
ETS 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.
The 1-month trajectory of the VIX Regression Channel blew out a collective volatility breath by making a decisive trajectory move towards 15%. Lowering of the VIX suggests a lowering of market angst, but it also suggests lower premiums.
The trajectory for the 1-month VIX Regression Channel ended last week at 18%, down from 22% the week before. I still see this as the Marketeers remaining strained over the current market sentiment – but hopeful.
Being blind to all other indicators, I will vote for a cautious DEFCON level 4
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.
The S&P 500 Put/Call Ratio continues to have a wild ride through December.
Ending with .43 this past Friday, the Put/Call Ratio fell below the .5 line. And the 9-Day SMA is about to take the dunk. This suggests the Marketeers are buying and starting to feel a little confident about the future.
Note: if the current ratio, the 9-Day SMA, and the 50-Day SMA are all below the .5 line, I might have to give this a DEFCON 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)
December’s Sentiment Index improved over November’s. This could be because of income gains (including the 5.9% increase in Social Security Payments).
But 70.6% is still not a good level overall. Inflation is probably the biggest drag to the index, but it appears the Omicron news is being shrugged. This may change with the Omicron wind.
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) = 35,951 – up 1.6% from 35,365 last week. (4 weeks deviation: 557 up from 549 last week)
S&P 500 (SPX) = 4,726 – up 2.2% from 4,621 last week. (4 weeks deviation: 61.18 up from 59.33 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.
Market Thrashing
4 Weeks Thrashing of DJX = +/- 557 points or 1.5% of the market’s volume is slightly down from 1.6% last week.
4 Weeks Thrashing of SPX = +/- 61.18 points or 1.3% of the market’s volume is flat from 1.3% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)
For the past 30 days, the S&P 500 moved all over the map. Thrashing was high as the Marketeers tried to decide which direction the markets will go through the financial debates in the Senate. But now that the year is over, and the big-budget bills have passed (or killed per BBB), I will assume a settling of the market thrashing and a more pointed trajectory will emerge.
The two-week trajectory moved bullish, as the severity of the projected market beatings did not pan out.
If the long-term markets are decisively bullish but thrashing is high, then there still appears to be some guesswork from the Marketeers.
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 ETS is showing improving content – DEFCON 4
- The VIX falling sharply – cautious DEFCON 4
- The P/C Ratio dropped below 0.5 – DEFCON 4
- The CSI shows a consumer base not excited about our economic future – DEFCON 3
- The Market Movement rebounded from November selloff – DEFCON 4
Trading Readiness Level for this week
This week, I will focus on:
General market pressures seem to be falling away. I don’t want to ramp up too fast, so I will let up off the breaks just a little.
This week, I’m going to bump up my premiums collected by opening 2 15-wide Strike-Width Spreads instead of 1 30-wide. I will do this while remaining cautious on my Short-Strike probability.
At DEFCON 4 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 2 15-wide Strike-Width Spread or 2 20-wide Spreads.
- Select the Short Strike with POTM >= 82.5%
- Spread term of 8-weeks or less
Profit and Loss Statement
(As of 12/31/2021)
Balance Sheet
| Year 2021 | Month Dec | Week #52 | |
| Beginning Account Balance | $16,000.00 | $20,342.72 | $20,653.64 |
| Deposits (Div. & Int.) | $1.61 | $0.00 | $0.0 |
| Withdraws (paycheck) | -$3,600.00 | -$300.00 | -$300.00 |
| Premiums on Open | $9,581.01 | $713.00 | 271.00 |
| Premiums on Close | -$1,118.00 | -$5.00 | -$0.00 |
| Fees Paid (total) | -$121.04 | -$7.14 | -$2.04 |
| Ending Account Balance | $20,743.58 | $20,743.58 | $20,743.58 |
| Total Gain/Loss | $4,743.58 | 400.86 | -$300.00 |
| ROR | 2.0% | -0.1% | |
| ROC | 29.6% |
Progress Graph
(Note: the negative weekly results for weeks 4, 8, 12, 17, 21, 25, 30, 34, 38, 43, 47, and 52 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 | $9,582.62 (Premiums) | 0.59 shares (Dividends Reinvested) |
| Funds Removed | -$1,239.04 (Early Close & Fees) | $0 (Fractional Shares Sold) |
| Ending Balance | $24,343.58 (Cash) | $20,926.44 (43.98 shares * $475.87 CV) |
| ROI | +52.1% | +30.8% |
Schedule for this Week
Goals for this week: (12/27/2021 – 12/31/2021) (Week #52)
- 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: Feb 18, 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.
- Bull Credit Spreads: Feb 18, 2022 (6-8 weeks)
- 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 12/31/2021)
Spread Count Summary:
| Year 2021 | Month Dec | Week #52 | |
| Vertical Bull Put Credit Spread | 85 | 6 | 2 |
| Vertical Bear Call Credit Spread | 0 | 0 | 0 |
| Vertical Bull Put Debit Spread | 0 | 0 | 0 |
| Vertical Bull Call Debit Spread | 0 | 0 | 0 |
| Margin Interest | 1 | 0 | 0 |
| Total | 86 | 6 | 2 |
Current Dollars at Risk:
| Year 2021 | Month Dec | Week #52 | |
| Vertical Bull Put Credit Spread | $13,287. | $13,287. | $3,729. |
| 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 | $13,287. | $13,287. | $3,729. |
| Max Risk Allowed | $16,000. | N/A | $3,000. |
Vertical Spreads Opened This Week
(12/27/2021 – 12/31/2021)
QQQ:360p/340p – Open 12/28/21 – Expires 02/18/22 – Max Gain = $144.00- Open Price = $402.27
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.0%, Headroom-10.1%, Max Loss=$1,856, AROR=54.1%
Entry Rules for Vertical Bull Put Credit Spreads:
- Current maximum dollars at risk < $16,000? Yes ($13,287)
- Max dollar at risk this week < $3,000? No ($3,729)
- 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)
- 2-week Thrashing < 1.0: No (1.8%)
- Put/Call Ratio < 1, (or falling if it is > 1)? No (1.2 up from 0.8)
- 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=$368.01)
- Short-strikes Prob-OTM > 82.5%? Yes (83%)
- 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)
This Spread technically goes over my one-week max dollar risk. But I had a couple of spreads that closed out early a few weeks ago leaving extra end-of-the-year dollars to spend.
QQQ:365p/345p – Open 12/27/21 – Expires 02/04/22 – Max Gain = $127.00- Open Price = $401.79
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.1%, Headroom-9.1%, Max Loss=$1,873, AROR=63.0%
Entry Rules for Vertical Bull Put Credit Spreads:
- Current maximum dollars at risk < $16,000? Yes ($11,431)
- Max dollar at risk this week < $3,000? Yes ($1,873)
- Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (39 days)
- Long-term trend (four months) bullish? Yes (see chart)
- Short-term trajectory of the underlying bullish? Yes (see chart)
- 2-week Thrashing < 1.0: No (1.5%)
- Put/Call Ratio < 1, (or falling if it is > 1)? Yes (0.8 down 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=$372.51)
- Short-strikes Prob-OTM > 82.5%? Yes (84.1%)
- 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 (20 strike width)
The past couple of weeks appears to be a lot less volatile. But coming off a couple of months of market indecision, I’m choosing to be a bit bolder (by opening two Spreads this week), but still stay a little cautious (Short-Strike POTM >= 82.5%).
Vertical Spreads Currently Cooking
(As of 12/31/2021)
DIA:320p/290p – Open 12/21/21 – Expires 01/28/22 – Max Gain = $122.00 – Open Price = $352.64
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.3%, Headroom-9.3%, Max Loss=$2,878, AROR=40.4%
Now: Prob. OTM=93.9%, Headroom=-12.0%
SPY:425p/395p – Open 12/15/21 – Expires 01/28/22 – Max Gain = $141.00 – Open Price = $470.18
(Vertical Bull Put Credit Spread)
Now: Prob. OTM=93.7%,Headroom=-10.7%
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%
Now: Prob. OTM=94.5%, Headroom=-12.5%
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=98.0%, Headroom=-17.2%
Vertical Spreads Closed This Week
(As of 12/31/2021)
General note: my anticipated December market meltdown clearly did not happen. For the most part, my Vertical Credit Spreads moved mostly sideways – maybe a little down. Although I am somewhat disappointed that I did not close the year with a Big Premium Bang, I can’t complain.
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%
At Close: Prob. OTM=99.9%, Head Room=-12.8, AROR= 26.7%
Cost to open: $0.82 premium collected * 100 shares = $82.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (closed worthless)
Net Profit= $82.00 to open – $0.00 to close – $1.00 fees = $81.00
AROR= ($81.00 / 38 days in play) *365 / $2,918 = 26.6%
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=29.6%
At Close: Prob. OTM=99.9%, Head Room=-14.9%, AROR= 29.6%
Cost to open: $1.18 premium collected * 100 shares = $118.00
Cost to close: $0.00 premium paid * 100 shares = $0.00 (closed worthless)
Net Profit= $118.00 to open – $0.00 to close – $1.00 fees = $117.00
AROR= ($117.00 / 50 days in play) *365 / $2,882 = 29.6%
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
– Damocles
I’m about to make the same mistake again.
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.”
3 THOUGHTS ON “Selling Vertical Credit Spreads for Income – 2021’s Year-End Results”