Trade Trudging is what I do when I don’t have any pithy commentary on Vertical Spreads – BUT, I still need to record this week’s Vertical Spread transaction in my Trading Journal.

Trade Trudging Week

Whether it be conflicts in schedules, oak allergies, beautiful spring days, lack of motivation, or just playing in the mud – this week has been spent in other grand pursuits and not Options awareness.

A Trade Trudging week is when I did make some Options trades that I need to record, but I don’t have a pithy commentary to share.

A Trade Journal would not be a Trade Journal if I don’t stay faithful in documenting all new positions I open. And I can’t open new positions if I don’t first complete my “This Week’s Market Sentiment” section (below) to give me trading guidance.

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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 01/02/2022)

In this section, I review five indicators: VIX, Put/Call Ratio, S&P 500, Consumer Sentiment Index, and Ecopolitical 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 (ETS):

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. The impact U.S. political polarization has on Wall Street cannot be glossed over.

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.

• Feds kneecaps the Marketeers in December’s meeting minutes
• Increasing Federal Discount Interst Rates on the horizon
• Inflation still problem #1
• Labor market runs dry
• Some market indexes falling into correction territory

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The Feds raising short-term interest rates will throw cold water on last year’s hot Bull Market. Many Economists are now expecting four interest rates increases in 2022 instead of the three the December’s Fed’s meeting minutes suggested. And a runoff in the balance sheet will more likely start mid-year instead of the end of the year. This will move interests on bonds up and put significant downward pressure on stocks throughout this year.

The 10-Year Treasury settled on 1.8% after the Federal Reserve released its December Meeting minutes. This is a 12-month high. A year from now, it can be approaching 3%. This is going to give a lot of market-dabblers an attractive alternative to the more risky stocks. I’m thinking the Trump era of 20% market growth is mostly over.

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The Producer Price Index is scheduled to be released this coming Thursday. But since we are already at the bad news level for inflation, even worse news may not move the needle much. But, if the index shows signs of retreating, then this may ignite a market growth spurt.

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The Tech sector was particularly affected by the news of the coming interest rates increase. The NASDAQ shredded 4.5% off the top which was a kick in the shin for my QQQ Vertical Spreads. But I don’t see this as kneecapping, so I am hopeful for a restart of QQQ’s bullish trajectory. (Even a week or two of sideways movements will be much appreciated.)

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Expect a reigniting of the Government Funding debates soon. The stop-gap bill passed by Congress last December is set to expire on Feb 18. And with all of Congress working so well together (NOT!) I will presume another stop-gap bill.

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Last week’s Job’s Report celebrated an unemployment rate below 4% but reeled with the number of job creation ending far below expectation. But is this a bad thing?

For the past several decades, our society encouraged high participation in the labor force. At first, it was to buy things that we don’t need. Now it’s necessary to have a two-income family just to make ends meet. That transition happened because with more people in the workforce, competition for an entry position got heated, and that competition allowed companies to hire people for a smaller salary (supply/demand).

With the 2020 pandemic lockdowns, many lost their jobs. And now that the job market is wide open, many are choosing to stay home. This choice is creating the opposite effect as before. Competition for people has heated up, which causes businesses to offer higher starting salaries. Now many states have raised their minimum wage – all without the Federal Government’s intervention.

Soon a family of four will be able to live off of one person’s wages. Capitalism is great!

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Expect the fearmongering to ratchet up early in 2022 as the mid-term elections campaigning start to heat up.

The DNC appears to be previewing their 2022 electioneering playbook. Where in 2020, the COVID-CON was used as a political cudgel to outs a sitting president, it now seems the Jan 6th, Capital protest will be to used prosecute the Republican party. (Note. The Democrats desperately want to officially label the January 6th Captial storming an insurrection, and Trump as the leader of that effort. This way, they can pull the 14th Amendment (Section 3) card and prevent Trump from running for President in 2024.)

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The expected Fed’s actions on raising interest rates and the start of reducing their $8.8 trillion balance sheet have me concerned. Knowing this has already put pressure on my open Vertical Spreads. I will vote for a cautious DEFCON 4

ETS votes 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 continues to relax on lower market volatility. Since the anticipated December Federal Budget fights did not occur, seems like the Marketeers are gaining more confidence that the current bull market will continue.

Last week’s release of December’s Federal Reserve meeting minutes gave the Marketeers a gut punch. This kick the VIX up to near 20% before it started to relax. But the general trend continues to lower the level of anxiety.

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 19%, up from 17% the week before keeping the VIX above 15% (but falling), I still see this as the Marketeers remaining strained with the current market sentiment – but hopeful.

Being blind to all other indicators, I will vote for a 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 starts 2022 in good shape. The 9-Day and 5-Day SMA are below 0.5 while the last week’s value ends slightly above 0.5.

The ratio oscillating around the 0.5 lines basically indicates a baseline sentiment. Even with the ETSs, the Marketeers are hanging on to their current portfolios.

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)

My CSI data is unchanged since last week. And this week’s Vertical Spread sentiment for this indicator remains as it was.

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) = 36,232 – down 0.2% from 36,338 last week. (4 weeks deviation: 459 down from 487 last week)
S&P 500 (SPX) = 4,677 – up 1.9% from 4,766 last week. (4 weeks deviation: 64.97 down from 72.31 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 = +/- 459 points or 1.3% of the market’s volume is flat from 1.3% last week.
4 Weeks Thrashing of SPX = +/- 64.97 points or 1.4% of the market’s volume is slightly down from 1.5% last week.
(Market Thrashing above 1.0% might indicate indecision from the Marketeers.)

The S&P 500 begins 2022 with a decisively 2.5% drop. This may be the beginning of a long (hopefully slow) correction as the Feds implement tapering.

The 4-week Market Thrashing is still relatively high as the Marketeers continue to digest last week’s ominous Fed’s Dec Meeting report. But the thrashing trajectory is slowly maneuvering downward towards 1.0%. If thrashing moves below 1.0% while the markets are giving up ground, this could be a good indicator that tough times are coming.

Note: ETF IWM fell below the Correction level just after Thanksgiving. From that point on, IWM has been moving sideways.

The 4-month trend, 4-week trajectory, and the 50-Day SMA are all strongly bullish. The 9-Day SMA is above the 50-Day SMA and rising. But not all Markets are agreeing. And with IWM now in correction territory, I’m going to give this indicator its first DEFCON 3

Market Index votes a DEFCON 3

My sentiment for this coming week:

Of the five indicators:

• The ETS is showing concernig content – cautious 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 showing signs of weakness – DEFCON 3

Trading Readiness Level for this week

DEFCON = 4

This week, I will focus on:

Rising interest rates will dominate the financial news. Although I see this as pressure on my Vertical Spreads, I don’t see this spiraling into a long-term Bear Market. I will expect a gradual decline in the broader markets and an adjustment in the Tech Sectors.

So, at a cautious DEFCON 4, I need to observe market movement early in the week to see if last week’s selloff continues. I will delay any new positions until I see the beginnings of a bounce back.

• Enter into new Spreads for a total market risk this week of < $3.5K (as the Markets see fit).
• Be leary of QQQ Spreads
• Open 1 15-wide Strike-Width Spread and 1 20-wide Spreads.
• Select the Short Strike with POTM >= 85.0% (without going under 1-SD).
• Analysze and raise the POTM if the two-week trend is negative.
• Spread term of 8-weeks or less.

Profit and Loss Statement

(As of 01/14/2022)

Balance Sheet

	Year 2022	Month Jan	Week #2
Beginning Account Balance	$28,000.00	$28,000.00	$28,000.00
Deposits (Div. & Int.)	$0.00	$0.00	$0.00
Withdraws (paycheck)	-$0.00	-$0.00	-$0.00
Premiums on Open	$491.00	$491.00	$205.00
Premiums on Close	-16.00	-$16.00	-$16.00
Fees Paid (total)	-$6.12	-$6.12	-$4.08
Ending Account Balance	$28,468.88	$28,468.88	$28,468.88
Total Gain/Loss	$468.88	$468.88	$184.92
ROR		1.7%	0.7%
ROC	1.7%

Progress Graph

(Note: the negative weekly results for weeks 4 are when I withdrew $525 from the Trading Account for my paycheck.)

My Performance vs. SPY

Hypothetically, instead of depositing $28,000 in my Options Trading Account, could I have done better if I bought $28,000 of the ETF/SPY instead?

	Options Trading Account	SPY (Fictional)
Initial Investment (As of Jan 4, 2021)	$28,000.00 (Cash)	$28,000.00 (58.9523 shares @ $474.96)
Funds Added	$491.00 (Premiums)	0.0 shares (Dividends Reinvested)
Funds Removed	-$22.12 (Early Close & Fees)	$0 (Fractional Shares Sold)
Ending Balance	$28,468.88 (Cash)	$27,255.43 (58.9523 shares * $462.33CV)
ROI	+1.7%	-2.7%

Schedule for this Week

Goals for this week: (01/10/2022 – 01/14/2022) (Week #2)

• 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: Mar 04, 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 01/14/2022)

Spread Count Summary:

	Year 2022	Month Jan	Week #2
Vertical Bull Put Credit Spread	4	4	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	0	0	0
Total	4	4	2

Current Dollars at Risk:

	Year 2022	Month Jan	Week #2
Vertical Bull Put Credit Spread	$14,502.	$6,509.	$3,295.
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	$14,502.	$6,509.	$3,295.
Max Risk Allowed	$28,000.	N/A	$3,500.

Vertical Spreads Opened This Week

(01/10/2022 – 01/14/2022)

DIA:330p/315p  – Open 01/14/22 – Expires 02/25/22 – Max Gain = $95.00 – Open Price = $358.51
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=84.3%, Headroom-8.0%, Max Loss=$1,405, AROR=58.1%

Entry Rules for Vertical Bull Put Credit Spreads:

1. Current maximum dollars at risk < $24,000? Yes ($14,502)
2. Max dollar at risk this week < $3,500? Yes ($3,295)
3. Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (42 days)
4. Long-term trend (four months) bullish? Yes (see chart)
5. Short-term trajectory of the underlying bullish? No (see chart)
6. 2-week Bullish & Thrashing < 1%: No (2-week = Bearish, Thrashing =0.6%)
7. Put/Call Ratio < 1, (or falling if it is > 1)? No (1.0 up from 0.9)
8. Current price above 9-Day SMA?: No (see chart)
9. 9-Day SMA above 50-Day SMA?: No (see chart)
10. Short-strike > 1 SD below the current price? Yes (1SD=$334.71)
11. Short-strikes Prob-OTM >= 85.0%? No (84.3%)
12. Short-Strike price below the trend channel at expiration?: Yes (see chart)
13. Strike Width minimum (>= 15)? Yes (15 strike width)

There’s a lot of red in the Entry Rules on this Spread.

Particularly, the 2-Week Bear trend has a Thrashing of 0.6%. This is suggesting that the Marketeers are in fair agreement that the short-term trajectory will stay a bear. And if the rate of decline for DIA stays constant for the next 42 days, then this Spread should easily expire worthlessly.

The Short Strike is below a DIA Correction Line. DIA will have to lose 10 months of gains in 42 days before it goes ITM.

For this Spread, I am betting that a major Market Collapse will not happen within its duration, but the increase of pressure on the Markets will continue to pull it down.

SPY:430p/410p  – Open 01/12/22 – Expires 02/25/22 – Max Gain = $110.00 – Open Price = $470.75
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=85.8%, Headroom-8.7%, Max Loss=$1,890, AROR=47.8%

Entry Rules for Vertical Bull Put Credit Spreads:

1. Current maximum dollars at risk < $24,000? Yes ($13,097)
2. Max dollar at risk this week < $3,500? Yes ($1,890)
3. Max time to have any dollars at risk < 8 weeks (<56 days)? Yes (44 days)
4. Long-term trend (four months) bullish? Yes (see chart)
5. Short-term trajectory of the underlying bullish? Yes (see chart)
6. 2-week Bullish & Thrashing < 1%: No (2-week = Bearish, Thrashing =0.97%)
7. Put/Call Ratio < 1, (or falling if it is > 1)? No (1.1 up from 0.8)
8. Current price above 9-Day SMA?: No (see chart)
9. 9-Day SMA above 50-Day SMA?: Yes (see chart)
10. Short-strike > 1 SD below the current price? Yes (1SD=$441.16)
11. Short-strikes Prob-OTM >= 85.0%? Yes (85.8%)
12. Short-Strike price below the trend channel at expiration?: Yes (see chart)
13. Strike Width minimum (>= 15)? Yes (20 strike width)

The markets had a tough end to last week. But yesterday and today, saw an “ok” bounce back. I decided to open on Spread today at higher POTM and will see if the markets continue to improve. I’ll open my second Spread on a higher note.

Vertical Spreads Currently Cooking

(As of 01/14/2022)

SPY:431p/416p  – Open 01/07/22 – Expires 02/18/22 – Max Gain = $172.00 – Open Price = $399.76
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=83.0%, Headroom-8.0%, Max Loss=$1,386, AROR=69.2%
Now: Prob. OTM=83.0%, Headroom=-7.5%

QQQ:368p/348p  – Open 01/03/22 – Expires 02/18/22 – Max Gain = $172.00 – Open Price = $399.76
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=80.0%, Headroom-7.9%, Max Loss=$1,828, AROR=74.2%
Now: Prob. OTM=62.4%, Headroom=-3.1%

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%
Now: Prob. OTM=70.2%, Headroom=-5.2%

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%
Now: Prob. OTM=69.4%, Headroom=-3.9%

SPY:425p/395p  – Open 12/15/21 – Expires 01/28/22 – Max Gain = $141.00 – Open Price = $470.18
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM=86.2%, Headroom-9.6%, Max Loss=$2,859, AROR=40.6%
Now: Prob. OTM=93.1%,Headroom=-8.8%

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=93.2%, Headroom=-9.8%

Vertical Spreads Closed This Week

(As of 01/14/2022)

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%
At Close: Prob. OTM=97.0%, Head Room=-11.7, AROR= 62.3%

Cost to open: $1.22 premium collected * 100 shares = $122.00
Cost to close: $0.12 premium paid * 100 shares = $12.00 (closed at 90% Max Gain)
Net Profit= $122.00 to open – $12.00 to close – $2.00 fees = $108.00
AROR= ($108.00 / 22 days in play) *365 / $2,878 = 62.3%

This Spread was closed after 22 days (16 days early) via a ThinkorSwim Trade Trigger.
My Annualized ROR was 62.3% off of the $2,878 that I put at risk. This is much better than the 40.4% return I would have gotten if I let it expire.

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%
At Close: Prob. OTM=99.3%, Head Room=-14.8%, AROR= 28.1%

Cost to open: $0.84 premium collected * 100 shares = $84.00
Cost to close: $0.04 premium paid * 100 shares = $4.00 (closed at 95% Max Gain)
Net Profit= $84.00 to open – $4.00 to close – $2.00 fees = $78.00
AROR= ($78.00 / 42 days in play) *365 / $2,416 = 28.1%

This Spread closed after 42 day (9 days early) via a ThinkorSwim Trade Trigger.
The Annualized ROR was slightly better than what it would be if this expired worthless.

Note: These two early closes removed $5,500 from the at-risk column. Starting next week, I may up the weekly trade risk from $3,500 to $4,000. Making this adjustment will allow me to open 2 20-Strike-Wide Spreads instead of a 20 and a 15 Strike Wide Spreads.

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.”