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In this week’s Journal Entry, I plan to create a consolidated matrix for my Vertical Spread’s Entry Rules. I want one easy table for Bull Put Credit Spreads, Bear Call Credit Spreads, and Iron Condors. Then I plan to take – the “blue pill.”

I know what you’re thinking,
’cause right now I’m thinking the same thing.
Actually, I’ve been thinking it
ever since I got here:
Why oh why didn’t I take the BLUE pill?

Cypher (Movie: The Matrix)

Vertical Spreads Entry Rules – Matrix Table

Matrix Table for Vertical Spreads Entry Rules
Cypher
(Movie: The Matrix)

This week’s Journal Entry covers 2 weeks –

Successfully trading Vertical Options Spreads during this crumbling economy requires keeping track of many moving parts – from technical analysis to social-economic market awareness all within a relatively short time frame for each position. Therefore, I need to make my Vertical Spread Entry Rules as simple as possible.

For this week’s Journal Entry, I will take the red pill.

I plan to create a consolidated matrix for my Vertical Spread’s Entry Rules. I want one easy table for Bull Put Credit Spreads, Bear Call Credit Spreads, and Iron Condors. I will expand on this table over the next several weeks.

Unfortunately, no one can be told what the Matrix is.
You have to see it for yourself.

– Morpheus (Movie: The Matrix)


Consolidated Matrix for my Vertical Spreads ENTRY RULES

Rule # Y/N Actual — Iron Condor — Entry Rules
Bear Calls Bull Puts
1 Y $6,172 Current maximum dollars at risk < $28,000? Maximum Trading Account dollars I am willing to risk.
Do not open Spread if this rule fails.
2 Y $3,785 Max 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. Do not open Spread if this rule fails.
3 Y 92.7% Is the Short-Strikes Prob-OTM >= 85.0%? The Prob-OTM guidance parameter is set in the Market Sentiment Section. Do not open Spread if this rule fails.
4 Y See Chart Is the Short-Strike price above the trend channel at expiration? Is the Short-Strike price below the trend channel at expiration? Part of the Trade the Trend Strategy is always ensuring the Short-Stike is above the 2-month trend channel.
Do not open Spread if this rule fails.
5 Y 1-SD =
$188.25
Short-strike > 1 S.D. above the current price? Short-strike < 1 S.D. above the current price? Bull Put Spread: Short Strike should not be less than 1 Standard Deviation above the current underlying price.
Bear Call Spread: Short Strike should not be more than 1 Standard Deviation above the current underlying price.
6 Y 43 days Is 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 committing 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.
7 Y See Chart Is the 60-Day Trend Channel mostly sideways (+/- 10 degrees off horizontal) and is this supported by a mixed 30-Day and 14-Day trajectory?

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.

Is the long-term trend (two months) bearish? Is the long-term trend (two months) bullish?
8 Y See Chart N/A

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 matches the strategy then wait. If not, don’t wait

Is the short-term trajectory of the underlying bearish? Is the short-term trajectory of the underlying bullish?
9 Y Thrash = 5.4%
Bearish
N/A

Bear Call Spread: 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.
Bull Put Spread: If the 2-week trend is bullish and the 2-week thrashing is below 1.0%, then this is a good sign that the trajectory will continue.

Is the 2-week Thrashing > 1% & bearish? Is the 2-week Thrashing < 1% & bullish?
10 Y 5.2 N/A Bear Call Spread: If the Put/Call Ratio is > 1 (regardless of trajectory), then the sentiment of the Marketeers of the underlying is bearish.
Bull Call Spread: If the Put/Call Ratio is < 1 (regardless of trajectory), then the sentiment of the Marketeers of the underlying is bullish.
Is the Put/Call Ratio > 1, (or rising if it is < 1)? Is the Put/Call Ratio < 1, (or falling if it is > 1)?
11 Y See Chart N/A Bear Call Spread: 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.
Bull Call Spread: If the underlying price is more than the 9-Day SMA, I should be reasonably confident that the short-term trend should continue to be bullish.
Is the current asset price below the 9-Day SMA? Is the current asset price above the 9-Day SMA?
12 Y See Chart N/A

Bear Call Spread: If the 9-Day SMA is less than the 50-Day, then the bearish trend of the underlying has a degree of confirmation. 
Bull Call Spread: If the 9-Day SMA is more than the 50-Day, then the bullish trend of the underlying has a degree of confirmation.

Is the 9-Day SMA below 50-Day SMA?  Is the 9-Day SMA above 50-Day SMA?
13 N 10 Is the Strike Width minimum(>= 20)? Trade Loss Resistant Spreads
Any rule not achieved needs to be explained.

 

There is a difference between knowing the path
and walking the path.

– Morpheus (Movie: The Matrix)

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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 06/13/2022)

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

  • 2 & 10 Year Treasury inverted – Yikes
  • 10 Year Treasury highest in 11 years – Yikes
  • Italian/German bond gap widens – Yikes
  • Federal Reserve meets this week – Yikes
  • Misery Index now over 12% – Yikes
  • WTI (oil) over $120/bbl – Yikes
  • Inflation pops another 1% over last month – Yikes
  • Confidence in National Leaders tanks – Yikes
  • Surging mortgage rates extracts toll – Yikes
  • Can’t find any Yays – Yikes
  • Bipartisan Gun Control Framework – Yawn
  • Jan 6th Investigation hearings – Yawn

Geopolitical

  • The Senate passed a bipartisan framework for “Gun Control,” but the only gun control in this framework is found in the name. The framework primarily lists systemic issues of gun violence (mental health, school security, expanded background checks) and is the best direction to steer our politicians. But what may be the Trojan Horse in the bill is the “Red Flag” provision (allowing gun confiscation). Although, the actual text of the bill has yet to be released. I hope it will stay away from challenging the 2nd Amendment.
  • The committee investigating the Jan 6, 2021 Capital riot cannot hold anyone accountable. However, if they could demonstrate credible “smoking guns” (privately or publicly), the President could instruct the DOJ to investigate Trump and anyone complicit in the riot (which I have no doubt Biden will – no matter how vague or circumstantial any evidence). Should the DOJ convict Trump before Nov 2024, he would be an insurrectionist and, according to the 14th Amendment (Section 3), ineligible to hold the office of President.
  • Is there a Nationalization of the oil companies in the future? I don’t think so. But President Biden and his Progressive Pushers are demanding the oil industry knuckle under and ditch profits and their stockholders to lower oil/gas prices, making it seem like a prelude to Nationalization. Blaming greedy execs and Putin for high gas prices, then dismissing his canceling thousands of drilling permits, shutting down pipelines, and expanding climate-control restrictions on energy production plants seems a little rich. It is because the Biden Administration will not stand up to the Woke Generation, we are in this mess.

Socioeconomics 

  • The Federal Reserve is meeting this week and is widely expected to announce a higher than predicted Interest Rate hike (0.75% instead of 0.5%). And with the higher-than-expected inflation numbers published last week, there is increased fear that the aggressive raise may be the tipping point to send the U.S. economy into a recession.
  • The home / real estate markets are starting to cool down as mortgage rates start to get hot (mortgage rates are now at 2008 levels). A reduction in new home orders means fewer refrigerators sold and more contractors not working. This slowdown is precisely what the Federal Reserve intends as they raise interest rates. As a necessary evil to break the back of inflation, it will not help push the markets back into a bull run any time soon.

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) - 06/13/2022
- OptionsTradesByDamocles.com
ThinkorSwim Chart: CBOE Market Volatility Index (VIX) – 06/13/2022

The 4-week trajectory of the VIX Regression Channel trajectory continues a dramatic decline. This demonstrates a little less fear in a bear run in the last couple of months. But the sudden spike at the end of last week implies a return to fear.

  • Last week the VIX jumped up to 33.18% from 24.79% the week before
  • The VIX spent most of the previous four weeks oscillating about the 30.0% line
  • The current VIX is way above the 9-Day and 120-Day SMA
  • The 9-Day SMA is above the 120-Day SMA

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

VIX above 30% is my demarcation for a DEFCON 2. However, the VIX is still too far above the 15% line to be anything but cautious.

Being blind to all other indicators, I will vote for a cautious DEFCON level 2

VIX votes a DEFCON 2

Put/Call Ratio:

Put Options are frequently used as protection against existing investments falling. When the ratio between Put Options bought and Call Options bought rises, this indicates 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 06/13/2022
  • The S&P 500’s Put/Call Ratio touches Trouble Region.
  • The 9-Day SMA finally pokes back above the 0.75 line, confirming the Bears are back in town.

The Marketeers pushed the Put/Call Ratio up to 0.99, insinuating we may be in for some market troubles. For the past month, the ratio bounced around the 0.75 line. Being so close to the 1.0 line, I will go with a DEFCON 2 this week.

Put/Call Ratio votes a DEFCON 2

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 06/10/2022
Consumer Sentiment Index as of 06/10/2022

June’s preliminary results took a major hit over May’s final. Consumer Sentiment dropped to 50.2, down over 14% 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 1.0% in April. Now up to 8.6% from a year ago.
  • Unemployment Rate: May rate = 3.6%. Unchanged from 3.6% in April.

Misery Index = 12.2% (8.6% + 3.6%). Slightly up from 12.1% last month.
(Note: Ideally, the Misery Index should be well below 10% for a growing economy.)

The Misery Index continues to climb as half of all consumers believe our economy is moving in the wrong direction.

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) = 3,901- down 5.1% from 4,109 last week. (4 weeks deviation: 92 up from 87 last week)
Russell 2000 (RUT) = 1,800 – down 4.6% from 1,887 last week. (4 weeks deviation: 49 down from 50 last week)

ThinkorSwim Chart: Daily S&P 500 Index -Four/Two Months Trend (Updated 06/13/2022
- OptionsTradesByDamocles.com
ThinkorSwim Chart: Daily S&P 500 Index
Four/Two Months Trend (Updated 06/13/2022)
ThinkorSwim Chart: Daily Russell 2000 Index - Four/Two Months Trend (Updated 06/13/2022)
- OptionsTradesByDamocles.com
ThinkorSwim Chart: Daily Russell 2000 Index
Four/Two Months Trend (Updated 06/13/2022)

Market Performance

4 Weeks Thrashing of SPX = +/- 92 points or 2.4% of the market’s volume is up from 2.1% last week.
4 Weeks Thrashing of RUT = +/- 49 points or 2.7% of the market’s volume is down from 3.1% last week
(Market Thrashing below 1.0% might be a confirmation of the markets moving mostly sideways.)

  • 4-week trends continue bullish
  • Thrashing mostly flat but remains high
  • Both indexes dropped 5% over the last week

Both Indexes took a major hit last week with higher-than-expected inflation ratings. Naturally, this is a concern to the Marketeers as the Feds are deliberating on a 0.75% Interest Rate increase.

Being blind to all other indicators, I’ll go with an optimistic DEFCON 2.

Market Index votes an optimistic DEFCON 2

My sentiment for this coming week:

Of the five indicators:

  • The ETS has many systemic issues – optimistic DEFCON 2
  • The VIX is above 30% -DEFCON 2
  • The P/C Ratio touching Trouble Region – DEFCON 2
  • The CSI shows a consumer base not excited about our economic future – dismal DEFCON 2
  • The market indexes turn sour – optimistic DEFCON 2

All my technical indicators showed depressed Markets.

Trading Readiness Level for this week

DEFCON = 2

This Week’s Rules

  1. 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%
  • Entry Rule 5: 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 5: Call Short Strike >= 1 Standard Deviation
  • Entry Rule 5: 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 06/17/2022)

Cash Balance Sheet

Year
2022
Month
Jun
Week
#24
Beginning Account Balance$28,000.00$16,036.36$16,422.22
Deposits (Div. & Int.)$1.08$0.00$0.00
Withdraws (paycheck1)-$2,625.00-$0.00-$0.00
Premiums on Open$11,375.00$616.00$215.00
Premiums on Close-20,085.39-$47.00-$39.00
Fees Paid (total)-$76.66-$16.33-$9.19
Ending Account Balance$16,589.03$16,589.03$16,589.03
Total Gain/Loss-$11,410.97$552.67$166.81
ROR3.4%1.0%
ROC-40.8%
1 Paycheck = 22.5% of initial investment paid out monthly

Cash Flow Chart

YOD Vertical Credit Spreads Cash-Flow Chart – As of 06/17/2022 (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$11,235.08
(Premiums)
0.41 shares
(Dividends Reinvested)
Funds Removed-$20,162.05
(Early Close & Fees)
$0
(Fractional Shares Sold)
Market Changes-$975.00
(Open Spreads’ Fair Market Value )
-$6,405.59
(Gain/Loss)
Ending Balance$18,239.03
(Mark-To-Market)
$21,594.41
(59.3596 shares * $363.79 CV)
ROI-34.9%-22.9%
As of 06/17/2022, 9:41 AM







Schedule for this Week

Goals for this week: (06/13/2022 – 06/17/2022) (Week #24)

  • 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: Aug 5, 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 06/17/2022)

Spread Count Summary:

Year
2022
Month
Jun
Week
#24
Vertical Bull Put Credit Spreads2500
Vertical Bear Call Credit Spreads922
Iron Condors330
Total3852

Current Dollars at Risk:

Year
2022
Month
Jun
Week
#24
Vertical Bull Put Credit Spread$0.$0.$0.
Vertical Bear Call Credit Spread$3,785.$3,785.$3,785.
Iron Condor$2,387.$2,387.$0.
Total Dollar Risk$6,172.$6,172.$3,785.
Max Risk Allowed$28,000.N/A$4,000.

Options Buying Power:

Unallocated dollars available to open new Vertical Credit Spreads:

Current Cash Balance$16,589
Set-Aside Dollars for Existing Spreads-$7,000
Cash Available for New Spreads$9,589
(Options Buying Power)







Vertical Spreads Opened This Week

This Journal Entry covers two weeks (weeks 23 and 24). Last week I was on vacation in French Lick, Indiana.

(06/13/2022 – 06/17/2022)

IWM:190c/200c/X3 – Open 06/15/22 – Expires 07/29/22 – Max Gain = $148.00 – Open Price = 379.29
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 92.7, Headroom= +15.1%, Max Loss= $2,859, AROR= 41.0%

ThinkorSwim Chart: Vertical Bear Call Credit Spread – IWM – Short Strike: 190 – Long Strike: 200
- OptionsTradesByDamocles.com
ThinkorSwim Chart: Vertical Bear Call Credit Spread – IWM – Short Strike: 190 – Long Strike: 200
Rule # Y/N Actual — Iron Condor — Entry Rules
Bear Calls Bull Puts
1 Y $6,172 Current maximum dollars at risk < $28,000? Maximum Trading Account dollars I am willing to risk.
Do not open Spread if this rule fails.
2 Y $3,785 Max 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. Do not open Spread if this rule fails.
3 Y 92.7% Is the Short-Strikes Prob-OTM >= 85.0%? The Prob-OTM guidance parameter is set in the Market Sentiment Section. Do not open Spread if this rule fails.
4 Y See Chart Is the Short-Strike price above the trend channel at expiration? Is the Short-Strike price below the trend channel at expiration? Part of the Trade the Trend Strategy is always ensuring the Short-Stike is above the 2-month trend channel.
Do not open Spread if this rule fails.
5 Y 1-SD =
$188.25
Short-strike > 1 S.D. above the current price? Short-strike < 1 S.D. above the current price? Bull Put Spread: Short Strike should not be less than 1 Standard Deviation above the current underlying price.
Bear Call Spread: Short Strike should not be more than 1 Standard Deviation above the current underlying price.
6 Y 43 days Is 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 committing 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.
7 Y See Chart Is the 60-Day Trend Channel mostly sideways (+/- 10 degrees off horizontal) and is this supported by a mixed 30-Day and 14-Day trajectory?

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.

Is the long-term trend (two months) bearish? Is the long-term trend (two months) bullish?
8 Y See Chart N/A

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 matches the strategy then wait. If not, don’t wait

Is the short-term trajectory of the underlying bearish? Is the short-term trajectory of the underlying bullish?
9 Y Thrash = 5.4%
Bearish
N/A

Bear Call Spread: 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.
Bull Put Spread: If the 2-week trend is bullish and the 2-week thrashing is below 1.0%, then this is a good sign that the trajectory will continue.

Is the 2-week Thrashing > 1% & bearish? Is the 2-week Thrashing < 1% & bullish?
10 Y 5.2 N/A Bear Call Spread: If the Put/Call Ratio is > 1 (regardless of trajectory), then the sentiment of the Marketeers of the underlying is bearish.
Bull Call Spread: If the Put/Call Ratio is < 1 (regardless of trajectory), then the sentiment of the Marketeers of the underlying is bullish.
Is the Put/Call Ratio > 1, (or rising if it is < 1)? Is the Put/Call Ratio < 1, (or falling if it is > 1)?
11 Y See Chart N/A Bear Call Spread: 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.
Bull Call Spread: If the underlying price is more than the 9-Day SMA, I should be reasonably confident that the short-term trend should continue to be bullish.
Is the current asset price below the 9-Day SMA? Is the current asset price above the 9-Day SMA?
12 Y See Chart N/A

Bear Call Spread: If the 9-Day SMA is less than the 50-Day, then the bearish trend of the underlying has a degree of confirmation. 
Bull Call Spread: If the 9-Day SMA is more than the 50-Day, then the bullish trend of the underlying has a degree of confirmation.

Is the 9-Day SMA below 50-Day SMA?  Is the 9-Day SMA above 50-Day SMA?
13 N 10 Is the Strike Width minimum(>= 20)? Trade Loss Resistant Spreads
Any rule not achieved needs to be explained.

Of my 13 Entry Rules, 1 has failed:

Rule 13: With the Prob-OTM raised to over 90%, I chose to open a 10 Strike Wide Spread

Note: Due to my inattentiveness, my last Spread was inadvertently opened with only 1 contract. This error put expected premiums below budget. To compensate, I opened this Spread with 3 contracts.

SPY:420c/430c/X1 – Open 06/15/22 – Expires 07/29/22 – Max Gain = $74.00 – Open Price = 379.29
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 91.2, Headroom= +10.7%, Max Loss= $926.00, AROR= 65.4%

ThinkorSwim Chart: Vertical Bear Call Credit Spread – SPY – Short Strike: 420 – Long Strike: 430
- OptionsTradesByDamocles.com
ThinkorSwim Chart: Vertical Bear Call Credit Spread – SPY – Short Strike: 420 – Long Strike: 430
Rule # Achieved Support — Iron Condor — Entry Rules
Bear Calls Bull Puts
1 Y $7,451 Current maximum dollars at risk < $28,000? Maximum Trading Account dollars I am willing to risk.
Do not open Spread if this rule fails.
2 Y $1,852 Max 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. Do not open Spread if this rule fails.
3 Y 91.1% Is the Short-Strikes Prob-OTM >= 85.0%? The Prob-OTM guidance parameter is set in the Market Sentiment Section. Do not open Spread if this rule fails.
4 Y See Chart Is the Short-Strike price above the trend channel at expiration? Is the Short-Strike price below the trend channel at expiration? Part of the Trade the Trend Strategy is always ensuring the Short-Stike is above the 2-month trend channel.
Do not open Spread if this rule fails.
5 Y 418.82 Short-strike > 1 S.D. above the current price? Short-strike < 1 S.D. above the current price?

Bull Put Spread: Short Strike should not be less than 1 Standard Deviation above the current underlying price
Bear Call Spread: Short Strike should not be less than 1 Standard Deviation above the current underlying price.

6 Y 44 days Is 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 committing 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.
7 Y See Chart Is the long-term trend (two months) bearish? Is the long-term trend (two months) bullish? 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.
8 Y See Chart Is the short-term trajectory of the underlying bearish? Is the short-term trajectory of the underlying bullish? 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 matches the strategy then wait. If not, don’t wait.
9 Y Thrash = 4.3%
Bearish
Is the 2-week Thrashing > 1% & bearish? Is the 2-week Thrashing < 1% & bullish? Bear Call Spread: 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.
Bull Put Spread: If the 2-week trend is bullish and the 2-week thrashing is below 1.0%, then this is a good sign that the trajectory will continue.
10 Y 1.2 Is the Put/Call Ratio > 1, (or rising if it is < 1)? Is the Put/Call Ratio < 1, (or falling if it is > 1)? Bear Call Spread: If the Put/Call Ratio is > 1 (regardless of trajectory), then the sentiment of the Marketeers of the underlying is bearish.
Bull Call Spread: If the Put/Call Ratio is < 1 (regardless of trajectory), then the sentiment of the Marketeers of the underlying is bullish.
11 Y See Chart Is the current asset price below the 9-Day SMA? Is the current asset price above the 9-Day SMA?

Bear Call Spread: 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.
Bull Call Spread: If the underlying price is more than the 9-Day SMA, I should be reasonably confident that the short-term trend should continue to be bullish.

12 Y See Chart Is the 9-Day SMA below 50-Day SMA?  Is the 9-Day SMA above 50-Day SMA? Bear Call Spread: If the 9-Day SMA is less than the 50-Day, then the bearish trend of the underlying has a degree of confirmation. 
Bull Call Spread: If the 9-Day SMA is more than the 50-Day, then the bullish trend of the underlying has a degree of confirmation. 
13 N 10 Is the Strike Width minimum(>= 20)? Strike Width is mainly determined via market conditions. If the conditions are favorable for the strategy, I may want to open 2 Spreads with a narrower width. If the conditions are not good, consider 1 Spread at a wider Strike Width. The Strike Width could be less if I’m trying to stay under the week’s max dollar risk.
Any rule not achieved needs to be explained.

 

Of the 13 Entry Rules, 1 Failed:

Rule 13: The previous 12 rules passed and at the end of the day (6/15/22) the Feds are expected to announce a 0.75% interest rate increase. The +90% Prob-OTM is making this position a good candidate for 2 contracts.

Note: Due to my not paying attention, I opened this Spread with only 1 contract, making the premium collected half of what I budgeted.


(06/06/2022 – 06/10/2022)

SPY:445c/455c/355p/345p  – Open 06/08/22 – Expires 07/22/22 – Max Gain = $145.00 – Open Price = 415.60
(Iron Condor)
At Open: Prob. OTM= 87.8, Headroom= +7.2%c/-14.5%p, Max Loss= $857.00, AROR= 138.4%

ThinkorSwim Chart: Iron Condor– SPY – Short: 445c/355p – Long: 455c/345p
ThinkorSwim Chart: Iron Condor– SPY – Short: 445c/355p – Long: 455c/345p

QQQ:345c/355c/255p/245p  – Open 06/07/22 – Expires 07/22/22 – Max Gain = $122.00 – Open Price = 310.16
(Iron Condor)
At Open: Prob. OTM= 90.5, Headroom= +11.3%c/-17.7%p, Max Loss= $880.00, AROR= 110.6%

ThinkorSwim Chart: Iron Condor– QQQ – Short: 345c/255p – Long: 345c/255p
ThinkorSwim Chart: Iron Condor– QQQ – Short: 345c/255p – Long: 345c/255p

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.

Vertical Spreads Currently Cooking

(As of 06/17/2022)

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= 61.1%, Headroom= +7.3%c / -13.4%p, Max Loss= $868.00, AROR= 146.6%
Now: Prob. OTM= 99.7%c /61.1%p, Headroom= +21.3c% / -2.1p







Vertical Spreads Closed This Week

Note: This Journal Entry covers two weeks (Weeks 23 and 24)

(As of 06/17/2022)

QQQ:340c/350c  – Open 05/13/22 – Expires 07/01/22 – Max Gain = $63.00 – Open Price = $294.94
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 93.7%, Headroom= +16.7%, Max Loss= $937.00, AROR= 49.3%
At Close: Prob. OTM= 99.6%, Headroom= +23.8%, AROR= +70.6%

Income to open: $0.63 premium collected * 100 shares * 1 contracts = $63.00
Cost to close: $0.03 premium paid * 100 shares * 1 contracts = $3.00 (expired 17 days early)
Net Profit = $63.00 to open – $3.00 to close – $2.00 fees = $58.00
AROR = ($58.00 / 32 days in play) *365 / 937 = +70.6%

This Spread was closed 32 days early via a $0.03 Trade Trigger (95% of Max Gain)

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%
At Close: Prob. OTM= 99.3%, Headroom= +19.3%, AROR= +228.8%

Income to open: $0.80 premium collected * 100 shares * 2 contracts = $160.00
Cost to close: $0.04 premium paid * 100 shares * 2 contracts = $8.00 (expired 32 days early)
Net Profit = $160.00 to open – $8.00 to close – $4.00 fees = $148.00
AROR = ($148.00 / 13 days in play) *365 / 1,840 = +228.8%

This Spread was closed 32 days early via a $0.04 Trade Trigger. This Trade Trigger was updated from 90% of Max Gain ($0.16) to $0.04 this morning after I saw the stock futures were 600 points down and the Spread price prior to Market opening was at $0.03.

QQQ:320c/330c  – Open 05/23/22 – Expires 06/17/22 – Max Gain = $162.00 – Open Price = 292.14
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 89.4%, Headroom= +10.0%, Max Loss= $1,838, AROR= 113.5%
At Close: Prob. OTM= 99.0%, Headroom= +17.9%, AROR= +113.5%

Income to open: $0.81 premium collected * 100 shares * 2 contracts = $162.00
Cost to close: $0.00 premium paid * 100 shares * 2 contracts = $0.00 (expire worthlessly)
Net Profit = $162.00 to open – $0.00 to close – $2.00 fees = $160.00
AROR = ($160.00 / 28 days in play) *365 / 1,838 = +113.5%

QQQ:320c/330c  – Open 05/20/22 – Expires 07/17/22 – Max Gain = $152.00 – Open Price = 290.3
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 88.8%, Headroom= +9.6%, Max Loss= $1,838, AROR= 118.5%
At Close: Prob. OTM= 99.9%, Headroom= +17.9%, AROR= +118.5%

Income to open: $0.76 premium collected * 100 shares * 2 contracts = $152.00
Cost to close: $0.00 premium paid * 100 shares * 2 contracts = $0.00 (expire worthlessly)
Net Profit = $152.00 to open – $0.00 to close – $2.00 fees = $150.00
AROR = ($150.00 / 22 days in play) *365 / 1,848 = +118.5%

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%
At Close: Prob. OTM= 99.9%, Headroom= +17.9%, AROR= +120.1%

Income to open: $0.71 premium collected * 100 shares * 2 contracts = $142.00
Cost to close: $0.14 premium paid * 100 shares * 2 contracts = $28.00 (exit 32 days early)
Net Profit = $142.00 to open – $28.00 to close – $4.00 fees = $110.00
AROR = ($110.00 / 18 days in play) *365 / 1,858 = +120.1%

This Spread was closed 32 days early via an 90% of max profit trade Trigger.

(As of 06/10/2022)

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%
At Close: Prob. OTM= 99.2%, Headroom= +11.6%, AROR= +195.7%

Income to open: $1.55 premium collected * 100 shares * 1 contracts = $155.00
Cost to close: $0.08 premium paid * 100 shares * 1 contracts = $8.00 (exit 14 days early)
Net Profit = $155.00 to open – $8.00 to close – $2.00 fees = $145.00
AROR = ($145.00 / 32 days in play) *365 / 845 = +195.7%

This Spread was closed 14 days eary via an 95% of max profit trade-trigger.

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