There are a lot of geopolitical issues on our nation’s plate this year. We have historic economic woes, a watershed Supreme Court ruling, and a political revolution that appears set to jettison the Progressive Political Experiment this coming November. So, during this Memorial Day week, I will spend more time ranting than trading.

Ranting Week of Trade Trudging

Trade Ranting weeks is when I do my weekly journal due diligence; completing “This Week’s Market Sentiment,” making a couple of Options Trades, and recording my performance. But instead of spending my time learning something cool about trading Vertical Spreads, I’ll rant.

There are a lot of geopolitical issues on our nation’s plate this year. We have historic economic woes, a watershed Supreme Court ruling, and a political revolution that appears set to jettison the Progressive Political Experiment this coming November. So, during this Memorial Day week, I will spend more time ranting than trading.

“I’m guessing this is significant!”

Commentary Contents

Gun Control

The Uvalde school massacre is a monumental travesty. The harm it has done is incalculable. But I am disgusted with how some take a tragedy like this to push their political agendas.

Repressive gun control is not intended to solve mass killings but to continue the 235-year push for Federalism within our national government – specifically what the 10th Amendment forbade. Mass killings are forms of psychotic revenge, coercion, perversion, or profit. But most of the time, it’s just a form of suicide. There will always be Timothy McVeighs, Andrew Philip Kehoe, or Adam Lanzas. If we want to reduce gun violence, we must focus on all violence. We need to have a more civilized civilization.

A Federal Law cannot “legitimately” supersede a Constitutional Amendment (the Constitution is meant to limit what laws our Federal government can pass – not the other way around). We will need a 28th Amendment to nullify the 2nd – much as the 14th Amendment did to the 10th. (Note, our Civil War was not fought over slavery but the 14th Amendment to the Constitution. Slavery was the catalyst and public justification for the war – just like what the gun control issue is becoming today.)

If any kind of meaningful gun control becomes a Federally enforceable law (vis-a-vis the 14th Amendment) without a 28th Amendment to castrate the 2nd, then the Constitution itself can be subsumed by any Federal Law. This potentiality is why we need “originalists” on the Supreme Court.

Yeah… the aliens helped them.

Riley Poole (Movie: National Treasure)

Student Loan Forgiveness

Student Loan Forgiveness is mostly a political stunt – for the President of the United States does not have any authority to do such a thing.

How the Federal Government can spend money has to be first authorized by the House of Representatives, approved by the Senate, then implemented by the President according to the legislation. And since Student Loans are legally Federally guaranteed loans from our local banks (technically from all of our accumulated savings accounts), to “forgive” these loans means that the bank loans will go into default, and the Feds will have to repay the banks. And since there is no law that gives the President authority to borrow $500 billion from the treasury or raise taxes by $500 billion to repay the banks, there is no likelihood of “forgiveness.”

So, when I hear about Biden forgiving Student Loans, he only has two options:

1. Biden could redirect unused money from the COVID Relief Fund created by the CARES Act with a creatively named Executive Order (like Relief from Student Debts caused by COVID ) to pay a little portion of the existing loans. But this will only be a sliver and will most likely be challenged in the Supreme Court as an Executive Branch overreach.

2. Biden can instruct his Administration to stop sending out bills (a perception of forgiveness). But banks still have outstanding loans on their books, and the agreed-upon interests will still accrue (after all, this is not from cash deposited in the White House Savings Account, but my money from my local bank). The students will still owe this money but just won’t have to make a payment. Eventually, a Student Loan Bubble will occur with the aggregated bank debts so large that the only solution would be a half-trillion-dollar federal bailout to avoid another “too big to fail” 2008 financial crisis. We get the Build-Back-Better deal shoved down our throats whether we want it or not.

Why can’t they just say,
‘go to this place, here’s the treasure, spend it wisely’?

– Riley Poole (Movie: National Treasure)

Roe v Wade

It is widely expected that the final ruling coming out from the Supreme Court this year will overturn the 1973 Roe v Wade decision and, by extension, every ruling since. And with this decision, the Constitution will be back as the supernational law once more.

Not wishing to get mired in the highly charged abortion issue, I thoroughly believe that the original 1973 ruling was a judicial error. The objective of the Supreme Court has always been to focus on the Constitutional mandate to keep the Federal Government from running amok, and abortion was never a Federal muck until the Burger Court turned it into one. The proper decision in 1973 was just to strike down the then-Texas Abortion law and then allow our Republic to continue its decision process. But instead, the Burger Court retro-interprets the 14th Amendment to creatively include abortion into the implied “Right to Privacy” belief. From that point on, all hell broke loose.

I am very interested to read the “Opinion of the Court” to discover the rationale behind the reversal. And in this opinion, I VERY MUCH want to see a broad judicial explanation and guidance on how the courts should use the 14th Amendment so to prevent future abuses.

It’s a big blue-ish green man… with a strange-looking goatee…
I’m guessing that’s significant.

– Riley Poole (Movie: National Treasure)
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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 06/03/2022)

This section reviews five indicators: Ecopolitical events, VIX, Put/Call Ratio, Consumer Sentiment Index, the S&P 500, and how these could affect the market’s direction. Then, 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. U.S. political polarization’s impact 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 tweet.


Yikes – Yawns – Yays

  • EU partial bans Russian oil – Yikes
  • China’s provocation toward Taiwan – Yikes
  • Feds stand fast on aggressive interest rate hikes – Yikes
  • WTI (oil) pops over $120/bbl – Yikes
  • May Employment Report this Friday – Yikes
  • Inflation hits cost of education – Yikes
  • China extends COVID-zero policy – Yikes
  • House bubble – Yikes
  • Student Loan Bubble – Yikes
  • Countdown to Russian Default (again) – Yikes
  • EU’s hits new inflation highs – Yikes
  • Roe v Wade overturned – Yawn
  • Student loan forgiveness – Yawn
  • May Employment Report this Friday – Yay
  • Trump-era Tariffs to expire – Yay

Geopolitical

  • China is the second-largest economy in the world. Their COVID-Zero policy has exacerbated supply chains around the world with shortages of microchips, car parts, and medical supplies. With their factories closed or in minimal production, there are not many expectations that they will come back online before 2023. They are also hitting a cash-wall, as the reduced production is causing a shortfall in their treasuries. They will have to significantly up their debt to fill the gap.
  • Russia is back in the 30-day default grace period to pay about $100 million in both euros and dollars. But the Russian Finance Minister is trying to implement a scheme that will allow foreign investors to open accounts in Russia and deposit money in any denomination (not just rubles). This may or may not be a workaround to the US Treasury sanctions as the details have not been worked out.
  • The EU gets about 35% of its oil from Russia. And this past Monday, the EU had agreed to a “partial” ban “by the end of the year.”
  • EU’s area-annual inflation for May is expected to be 8.1%, up from 7.4% in April.

Socioeconomics 

  • The latest unemployment rate will be published this Friday when the May Jobs Report comes out. There is an expectation that the rate will go up but remain in a strong growth trajectory. The question is, “has this already been baked into today’s market values?” My thought is that last week’s 6% rally was a result of leaked employment numbers and the major market movers already bought in.
  • The 2018 tariffs imposed by the Trump Administration are coming up to their 4-year expiration date. The question is, will the Biden Administration extend these tariffs or allow them to expire. If they expire (assuming in coordination with China dropping their high tariffs on US goods at the same time), then the high import taxes on products from China, Canada, and other countries will vanish (greatly reduced) and some products on the shelf may drop in price. During times of historic inflation, this may be a good thing. BUT, the massive trade imbalance we had with China will no doubt return.

The systemic issues keeping pressure on the markets have not changed: War in Ukraine, high/rising inflation, China shuttered, oil price high, and sucky Consumer Sentiment. So, I’m keeping with the DEFCON 2 until one of these five starts to let up.

ETS votes a DEFCON 2

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 move but rather 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) - 05/29/2022
OptionsTradesByDamocles.com
ThinkorSwim Chart: CBOE Market Volatility Index (VIX) – 05/29/2022

The 4-week trajectory of the VIX Regression Channel changed trajectory and is now falling. This is demonstrating a little less fear in a bear run in the last few weeks.

  • Last week the VIX ticked down to 25.72% from 29.3% the week before
  • The VIX spent most of the previous four weeks oscillating about the 30.0% line
  • The current VIX is below the 9-Day but well above 120-Day SMA
  • The 9-Day SMA is well above the 120-Day SMA and leveling

The VIX’s high volatility is good for collecting premiums or pushing the Short-Strike further out. This is also a confirmation that a bear trajectory is likely for the next few weeks.

VIX above 30% is my demarcation for a DEFCON 2, but at 25.72% and falling, I need to acknowledge a market improvement.

Being blind to all other indicators, I will vote for a cautious DEFCON level 3

VIX votes a cautious 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 rises, this is an indicator that the Marketeers are buying insurance for what they may see as declining markets (or a pending market collapse). Conversely, when the Put/Call Ratio falls, 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 05/29/2022
- OptionsTradesByDamocles.com
ThinkorSwim Chart: S&P 500 Put/Call Ratio – as of 05/29/2022
  • The S&P 500’s Put/Call Ratio relaxes in the “Good Shape” region after four weeks of jitters
  • The end of the week value of 0.6 down from 0.9 last week
  • The 9-Day SMA stayed in the nervous region for over four weeks.

The Marketeers blew out a breath last week and started reinvesting in the markets instead of buying Puts. This is showing a little less concern about the extent of the coming bears.

Just because the Put/Call Ratio is now (briefly) below the 0.75 line I need to give this indicator a DEFCON level 3. But I’m not at all convinced that it will stay here long – so I’m cautious.

Put/Call Ratio votes a cautious DEFCON 3

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 05/22/2022
OptionsTradesByDamocles.com
Consumer Sentiment Index as of 05/22/2022

May’s final sentiment dropped to 58.4, down over 10% from last month. As a trajectory, these levels continue to showcase the doldrums of Biden/Progressive financial policies.

Misery Index

With the copious amount of economic pressures throughout the nation this year (inflation, employment, interest rates, etc.), knowing what the Misery Index is, and what direction the index is moving can cast a long shadow on Marketeer’s sentiment. Numbers are coming from the U.S. Bureau of Labor Statistics (bls.gov).

  • Inflation Rate: rose 0.3% in April. Now up to 8.3% from a year ago.
  • Unemployment Rate: April rate = 3.6%. Unchanged from 3.6% in March.

Misery Index = 11.9% (8.3% + 3.6%). Slightly down from 12.1% last month.
(Note: Ideally, the Misery Index should be below 10% or lower, to have a growing economy.)

The significant drop in Consumer Sentiment for the start of May is disappointing.

CSI votes a dismal DEFCON 2

Market Indexes:

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.

The Russell 2000 Index is commonly considered an indicator of the U.S. economic direction due to its focus on small-cap companies. The growth potential of small-cap stocks is attractive to Marketeers when economic expansion is expected. These same small-cap stocks are also the first to be jettisoned at the start of economic turmoil.

S&P 500 (SPX) = 4,158 – up 6.6% from 3,901 last week. (4 weeks deviation: 107.15 down from 132.67 last week)
Russell 2000 (RUT) = 1,888 – up 6.4% from 1,774 last week. (4 weeks deviation: 58.9 down from 64.19 last week)

ThinkorSwim Chart: Daily S&P 500 Index 
Four/Two Months Trend (Updated 05/29/2022)
OptionsTradesByDamocles.com
ThinkorSwim Chart: Daily S&P 500 Index
Four/Two Months Trend (Updated 05/29/2022)
ThinkorSwim Chart: Daily Russell 2000 Index 
Four/Two Months Trend (Updated 05/29/2022)
OptionsTradesByDamocles.com
ThinkorSwim Chart: Daily Russell 2000 Index
Four/Two Months Trend (Updated 05/29/2022)

Market Performance

4 Weeks Thrashing of SPX = +/- 107.15 points or 2.6% of the market’s volume is down from 3.4% last week.
4 Weeks Thrashing of RUT = +/- 58.9 points or 3.1% of the market’s volume is down from 3.6% last week
(Market Thrashing below 1.0% might be a confirmation of the markets moving mostly sideways.)

  • All trends continue decisively bearish
  • RUT’s three trends continue to suggest a bear market
  • Thrashing has fallen but remains high
  • Both indexes showed a +6% growth last week

This past week we were able to savor a +6% rise in the S&P and Russell 2000. Their thrashing has fallen suggesting a continuation in trajectory. The Russell 2000’s 7, 14, and 21-day trajectory are all aggressively bullish. So the Marketeers have started buying small-cap stocks over the past three weeks. I don’t believe this is the beginning of a bull market, but taking this time to buy deeply undervalued stocks.

Being blind to all other indicators, I’ll go with a cautious DEFCON 3.

Market Index votes a cautious DEFCON 3

My sentiment for this coming week:

Of the five indicators:

  • The ETS has many systemic issues – optimistic DEFCON 2
  • The VIX is trending very near 30% -cautious DEFCON 3
  • The P/C Ratio in the Good Shape region – cautious DEFCON 3
  • The CSI shows a consumer base not excited about our economic future – dismal DEFCON 2
  • The market indexes had a rally – cautious DEFCON 3

My technical indicators showed a bullish improvement over the past couple of weeks, but the other fundamentals are still problematic. These mixed signals may be a suggestion that we are flirting with a bottom, or at least slowing down the decline. I’m not feeling too optimistic about markets’ growth in the short term.

Trading Readiness Level for this week

DEFCON = 2

This Week’s Rules

  1. Open one Iron Condor
  2. Open one or two Vertical Bear Call Credit Spreads

Entry Rules

Vertical Bear Call Credit Spread (DEFCON 1, 2):
  • Entry Rule 3: Prob-OTM >= 85% (for 20 SW, 1 contract)
  • Entry Rule 3: Prob-OTM >= 90% (for 10 SW, 2 contract)
  • Entry Rule 4: Call Short Strike >= 1 Standard Deviation
  • Entry Rule 13: Strike-Width >= 20 (sum of all contracts)
Iron Condors (DEFCON 2, 3, 4):
  • Entry Rule 3: Call Prob-OTM >= 85%
  • Entry Rule 3: Put Prob-OTM >= 90%
  • Entry Rule 4: Call Short Strike >= 1 Standard Deviation
  • Entry Rule 4: Put Short Strike <= 1 Standard Deviation
  • Entry Rule 13: Strike-Width >= 20 (sum of all legs and contracts)
Vertical Bull Put Credit Spreads (DEFCON 4, 5):
  • Entry Rule 3: Prob-OTM >= 100% (No Bull Spreads)
  • Entry Rule 4: Put Short Strike <= 1 Standard Deviation
  • Entry Rule 13: Strike-Width >= 20 (per leg)

Exit Rules:

  • Early close following this schedule:
    • 85% of max-gain if 4 or more weeks out
    • 90% of max-gain if 3 or more weeks out
    • 95% of max-gain if 2 or more weeks out
    • Let expire if less than 2 weeks out
  • Roll or Close Spreads within 1 week of expiration if:
    • Short Strike is ITM, or
    • Short Strike < 1.0% below the current price and 1-week trajectory is bullish, or
    • Short Strike < 55% POTM and 1-week trajectory is bullish
    • In a bull market, do not roll Bear Spreads
    • In a bear market, do not roll Bull Spreads
  • Allow NO leg to expired ITM and be assigned!

(Note: The markets have been collapsing for over four months, and I do not think we are toying with the bottom yet. Therefore, it will be unwise to roll any Bull Spreads.)







Profit and Loss Statements

(As of 06/03/2022)

Cash Balance Sheet

Year
2022
Month
Jun
Week
#22
Beginning Account Balance$28,000.00$16,036.34$15,880.44
Deposits (Div. & Int.)$1.06$0.00$0.14
Withdraws (paycheck1)-$2,625.00-$0.00-$0.00
Premiums on Open$10,893.00$134.00$294.00
Premiums on Close-20,038.39-$0.00-$2.19
Fees Paid (total)-$62.37-$2.04-$4.09
Ending Account Balance$16,168.30$16,168.30$16,168.30
Total Gain/Loss-$11,831.70$131.96$287.86
ROR0.8%1.8%
ROC-42.3%
1 Paycheck = 22.5% of initial investment paid out monthly

Cash Flow Chart

YOD Vertical Credit Spreads Cash-Flow Chart – As of 06/03/2022 (Excel Chart)

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$10,894.06
(Premiums)
0.41 shares
(Dividends Reinvested)
Funds Removed-$20,100.77
(Early Close & Fees)
$0
(Fractional Shares Sold)
Market Changes-$1,120.00
(Open Spreads’ Fair Market Value )
-$3,686.92
(Gain/Loss)
Ending Balance$17,673.29
(Mark-To-Market)
$24,313.08
(59.1706 shares * $409.59 CV)
ROI-36.9%-13.2%
As of 06/01/2022, 3:33 PM







Schedule for this Week

Goals for this week: (05/30/2022 – 06/03/2022) (Week #22)

  • 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 on the watch list
  • Set target expiration dates for all Options as follows:
    • Bull Credit Spreads: July 22, 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 early trading.)
  • Watch one Webcast or take one online mini-course to be completed by Friday.

Tuesday – Thursday:

  • Review how yesterday’s staged trades moved. Then, 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 open on any one day).
  • Be mindful of this week’s 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 a weekly journal (this blog) with any lessons learned or strategy changes.

This Week’s Trade Activity

(As of 06/03/2022)

Spread Count Summary:

Year
2022
Month
Jun
Week
#22
Vertical Bull Put Credit Spreads2500
Vertical Bear Call Credit Spreads701
Iron Condors111
Total3413

Current Dollars at Risk:

Year
2022
Month
Jun
Week
#22
Vertical Bull Put Credit Spread$0.$0.$0.
Vertical Bear Call Credit Spread$9,166.$0.$1,840.
Iron Condor$1,866.$1,866.$1,866.
Total Dollar Risk$11,032.$1,866.$3,706.
Max Risk Allowed$28,000.N/A$4,000.

Options Buying Power:

Unallocated dollars available to open new Vertical Credit Spreads:

Current Cash Balance$16,168.29
Set-Aside Dollars for Existing Spreads-$11,000
Cash Available for New Spreads$5,168.29
(Options Buying Power)







Vertical Spreads Opened This Week

(05/30/2022 – 06/03/2022)

SPY:440c/450c/355p/345p  – Open 06/01/22 – Expires 07/08/22 – Max Gain = $134.00 – Open Price = 409.59
(Iron Condor)
At Open: Prob. OTM= 89.3, Headroom= +7.3%c/-13.4%p, Max Loss= $868.00, AROR= 146.6%

ThinkorSwim Chart: Iron Condor– SPY – Short: 440c/355p – Long: 450c/345p
ThinkorSwim Chart: Iron Condor– SPY – Short: 440c/355p – Long: 450c/345p

Vertical Bear Call Credit Spread Entry Rules for this week. 

Iron Condors (DEFCON 2, 3, 4):
  • Entry Rule 3: Call Prob-OTM >= 85%
  • Entry Rule 3: Put Prob-OTM >= 90%
  • Entry Rule 4: Call Short Strike >= 1 Standard Deviation
  • Entry Rule 4: Put Short Strike <= 1 Standard Deviation
  • Entry Rule 13: Strike-Width >= 20 (sum of all legs and contracts)

I technically do not have Entry Rules for Iron Condors except for the parameters above. This Spread passes all these rules.

This is my first Iron Condor in 4 years. I need to better define these trade and Entry Rules.


SPY:450c/460c  – Open 05/31/22 – Expires 07/15/22 – Max Gain = $160.00 – Open Price = 414.92
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 90.5%, Headroom= +8.5%, Max Loss= $1,840, AROR= 69.6%

ThinkorSwim Chart: Vertical Bear Call Credit Spread – SPY – Short: 450 Call – Long: 460 Call
- OptionsTradesByDamcles.com
ThinkorSwim Chart: Vertical Bear Call Credit Spread – SPY – Short: 450 Call – Long: 460 Call

Vertical Bear Call Credit Spread Entry Rules for this week. 

YesNoSupportEntry RulesVertical Bear Call Credit Spreads
1X$9,166Current maximum dollars at risk < $28,000? Maximum Trading Account dollars I am willing to risk.
Do not open Spread if this rule fails
2XSee ChartIs the Short-Strike price above the trend channel at expiration? Part of the Trade the Trend Strategy is always to ensure the Short-Stike is above the 2-month trend channel at expiration.
Do not open Spread if this rule fails
3X91.5%Prob-OTM >= 85% (20 SW, 1 contract)
Prob-OTM >= 90% (10 SW, 2 contract)
The Prob-OTM guidance parameter is set in the Market Sentiment Section. This may be adjusted due to market conditions.
SW = Strike Width
4X448.93Short-strike > 1 S.D. above the current price?Short Strike should be more than 1 Standard Deviation above the current underlying price. This may be adjusted due to market conditions.
5X$1,840Max dollar at risk this week < $4,000?Maximum dollar risk set for this week. If I go over this amount, then I may be short of available cash in later weeks
6X45 daysIs the max time to have any dollars at risk is <= 8 weeks (<56 days)?Do not open a new spread with an expiration date of more than 8 weeks out (the longer, the better); otherwise, I will be earmarking my available dollars for too long. If 8 weeks is not available, then seek shorter times. Avoid having more than three Vertical Spreads expiring in one week.
7XSee ChartIs the long-term trend (two months) Bearish?Trade the Two-Month Trend. A longer trend will not react fast enough for a 6-8 week Spread, and a shorter trend may be too capricious.
8XSee ChartIs the short-term trajectory of the underlying bearish?A 1-week trajectory may be a reasonable indicator if I should open a new Spread early in the week or should I wait. If the early trajectory is bullish, wait. If bearish, don’t wait.
9XThrash = 2.2% &
Bullish
Is the 2-week Thrashing > 1% & Bearish?If the 2-week trend is bearish and the 2-week thrashing is above 1.0%, then this is a good sign that the trajectory will continue. To collect a little more premium, I might want to lower the Probability of Out-of-the-Money (POTM).
10X1.3 to 1.4Is the Put/Call Ratio > 1, (or rising if it is < 1)?If the Put/Call Ratio is > 1 (regardless of trajectory), then the sentiment of the Marketeers of the underlying is bearish, and this rule passes. Conversely, if the ratio is < 1, then the sentiment is bullish, and this rule fails.
11XSee ChartIs the current asset price below the 9-Day SMA?If the underlying price is less than the 9-Day SMA, I should be reasonably confident that the short-term trend should continue to be bearish.
12XSee ChartIs the 9-Day SMA below 50-Day SMA?If the 9-Day SMA is less than the 50-Day, then the bearish trend of the underlying has a degree of confirmation. So I might want to lower the POTM to collect a little more premium.
13X10Strike Width minimum
(1 contract >= 20, 2 contract >=10 )?
Mainly determined via market conditions. If the conditions are good, open 2 Spreads at 20 Strike Width. If the conditions are not good, consider 1 Spread at 40 Strike Width. The Strike Width could be less if I try to stay under the week’s max dollar risk. (If multi-contracts, then 10 and 20.)

If any of my Entry Rules fails, I need to explain why I still opened this Vertical Bear Call Credit Spread below.

Of the 13 rules, 2 have failed:

  • Rule 8: This week’s QQQ was bullish throughout. But the 4-month, 2-month, and 2-week trends are strongly bearish. This was a take-it or leave-it decision.
  • Rule 11: Today’s decent run-up pushed the current QQQ value slightly above the 9-SMA. It was below the SMA for the majority of this week.

The QQQ and SPY index ETFs are currently experiencing very high volatility (currently both at 70% – 80% of their 52-week range), and both are offering outstanding premiums for their Options. My other ETFs are well below their 50% percentile.

Vertical Spreads Currently Cooking

(As of 06/03/2022)

QQQ:335c/345c  – Open 05/26/22 – Expires 07/15/22 – Max Gain = $142.00 – Open Price = 295.99
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 90.7%, Headroom= +13.5%, Max Loss= $1,858, AROR= 55.0%
Now: Prob. OTM= 83.7%, Headroom= +9.2%

QQQ:340c/360c  – Open 05/13/22 – Expires 07/01/22 – Max Gain = $85.00 – Open Price = $294.94
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 93.7%, Headroom= +16.7%, Max Loss= $937, AROR= 49.3%
Now: Prob. OTM= 91.1%, Headroom= +10.8%

SPY:435c/445c  – Open 05/09/22 – Expires 06/24/22 – Max Gain = $155.00 – Open Price = $401.38
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 84.3%, Headroom= +8.3%, Max Loss= $845, AROR= 144.6%
Now: Prob. OTM= 83.8%, Headroom= +5.5%

QQQ:320c/330c  – Open 05/23/22 – Expires 06/17/22 – Max Gain = $162.00 – Open Price = 290.86
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 89.4%, Headroom= +10.0%, Max Loss= $1,848, AROR= 118.5%
Now: Prob. OTM= 74.4%, Headroom= +4.3%

QQQ:320c/330c  – Open 05/20/22 – Expires 07/17/22 – Max Gain = $162.00 – Open Price = 292.14
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 88.8%, Headroom= +9.6%, Max Loss= $1,838, AROR= 113.5%
Now: Prob. OTM= 74.4%, Headroom= +4.3%







Vertical Spreads Closed This Week

(As of 06/03/2022)

No 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 could make a retirement income from home by trading Stock Options. I was an Options Trading Beginner, 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 for beginners (me). I will record my weekly Options contract 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 are 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.”







OptionTradesByDamocles.com
OptionsTradesByDamocles.com