Excessive greed, impatience, and naïveté are the bane of all Marketeers. When we take on excessive and misguided risk, we eventually get slaughtered. It is the mission of every Marketeer to understand when to use the appropriate Option strategies.
Table of Content
Embrace the probability of your imminent death,
– Haymitch (Movie: Hunger Games)
and know, in your heart,
that there’s nothing I can do
to save you.
Bulls Bears and Pigs
(Movie: Hunger Games)
A bull market is one trending upward and a bear market is one trending downward. In either case, Bull Marketeers and Bear Marketeers have opportunities to earn money as long as they take strategic approaches.
Pig Marketeers, however, are those who feel they have divine insight into market timing, those who are looking for the big one-time massive Options payout, or those who are tyro traders. And since this is just my fourth year in the Options Spreads Hunger Games, this makes me a Pig Marketeer.
Last month, I certainly got slaughtered. I was sorely unprepared for the demise of the long bull market that I have been enjoying over the past couple of years. This unpreparedness is what makes me a tyro trader.
First, in 2020 I saw a couple of months of a deep market correction. But the “V” shape recovery gave me no pause to consider the inevitable bear market – let alone prepare for one. At the end of 2020, I had no cogent plans for a Vertical Bear Call Credit Spreads or Iron Condors. I have not set DEFCON thresholds to signal when to change strategies. I was so pacified with the thought of the continuing Bull march that I never consider the need for strategy changes.
Second, I was cocky after finishing 2021 with a decent profit. I did see the systemic warnings written on the market’s wall, but I failed to take them seriously. 2022 was hailed in with the rise in Omicron, most pandemic stimuli had expired, there were repeated promises from the Feds of rising interest rates, the Federal Reserve has started asset tapering, and Russia was mobilizing troops to surround Ukraine. I did see the downturn coming, but I was mostly in denial of the game lying ahead of me.
Since the end of May, I expanded on my Entry Rules to include Vertical Bear Call Credit Spreads, and Iron Condors (Vertical Spreads Entry Rules – Matrix Table). I’ve also updated my DEFCON table (DEFCON: Options Trading Readiness Signal?) to signal when to use what strategy.
Finally, in my “This Week’s Guidance” section below, I am being explicit about what Spread strategy I will use this week – before I stage any positions. Hopefully, I will be able to divine the market’s direction to know when to switch (yep – still a pig).
Hope, is the only thing stronger than fear.
-President Snow (Movie: Hunger Games)
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 06/20/2022)
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 Influencers
Ecopolitical (Sociopolitical-Economics) Influencers (EPIs) 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.
EPIs are 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 EPIs can significantly disrupt all the other indicators at the drop of a tweet.
Yikes – Yawns – Yays
- Pandemic 2.0? – Yikes
- Misery Index over 12% – Yikes
- China can’t get it up – Yikes
- Election year fearmongering escalates – Yikes
- Gas prices still rising – Yikes
- No more free lunches – Yawn
- Roe v. Wade decision this week? – Yawn
- Is the bear market more than half over? – Yay
- Don’t Be Dupe By Doomsayers – Yay
- WTI oil prices starting to fall – Yay
Geopolitical
- It is widely expected that the fate of Roe v. Wade will be decided this week (last Friday in June). The decision has already been leaked early this year. Even though I do expect a lot of extremists to run in circles with their hair on fire, I do not feel this will affect my current open positions, nor will it change my strategy decisions for this week.
- New Pandemic just in time for November Elections. President Biden’s statement: “There’s going to be another pandemic. We have to think ahead.” caused many heads to turn. The question is, is Biden giving the country a heads up of something imminent, or is he being generally prophetic. Dr. Fauci testified that we need to prepare for a new COVID variance this Fall. I hope this does not mean we go back to dubious drop boxes and ballot harvesting that got Biden elected in 2020.
- After the tease in my last post on the Federal Nationalization of the Oil Industry, this week’s tease is “is there a Nationalization of the Airline Industry in our near future?” Secretary Pete Buttigieg is pissed because his flight was canceled last week and he was forced to drive from Washington to New York. And from that inconvenience, he is threatening federal powers to force Airlines to hire more employees. As Transportation Secretary, Pete Buttigieg oversees the Federal Aviation Administration, and he can certainly naggle the FAA to hire more TSA staff.
- President Biden and Energy Secretary Granholm have eluded to using the “Defense Production Act” to force a price break for gas. The last time this act was used was by President Trump to require automakers to produce ventilators early in the 2020 run-up to the COVID Pandemic. If the Defense Production Act can be used to lower the price of gas, why can’t it be used to lower the price of healthcare, college tuition, home prices, electric cars, and child care? All any politician has to do is to declare his pet project to be a “National Security Risk” and whamo – government takeovers of private businesses.
- Personal note, if the price of oil is the cause of high gas prices, then Biden should be approving, not rescinding the thousands of new oil well applications. I believe that high gas prices are deliberately being allowed to painfully manipulate Americans to go Green – all to appease the Climate Change wing of his party.
- Make no mistake, the ambition of the House Select Committee’s public investigation into the Jan 6th riot at the Capital is to publicly provide enough credible questions into Trump’s culpability to give the DOJ cover to start an Insurrection Investigation – can’t have the DOJ looking too political. The apparent goal is to either pre-Impeach Trump for the third time, to wrangle his time and reputation long enough to force him out of the 2024 race, and to tarnish as many Republican Congressmen possible prior to the mid-term election.
- Don’t Be Dupe By Doomsayers. Election year fearmongering has ramped up to a fever pitch. Like in 2020, the DNC has nothing to run on so they are stoking the liberal media with fearful talking points on how democracy will cease should the GOP wins in November. This tactic closely resembles the hyped-hysteria of the COVID-CON in 2020 to oust Trump.
- I find it a bit rich as the power-crippled Democrats in government will demand we get rid of the Senate Filibuster, pack the Supreme Court, circumvent the 2nd Amendment, block parents’ input in their child’s education, promote the use of Executive Privileges to bypass Congress, and cynically enrage the nation with exaggerated histrionics to manipulate elections – are insisting that it is the GOP that is threatening democracy. Woke Democrats pushing Defund the Police, indoctrination of racial division with CRT, and creating gender confusion with our children – insists that the GOP is fomenting violence. It’s time for them to call in the “Incredible Progressibles!”
- China continues to struggle to up its economy under its zero-COVID policies. After Shanghai reopened last week, large parts of the city were put back under lockdowns as an outbreak resurfaced. Now sections of Beijing are also shut down. China is going to be economically neutered for the remainder of the year.
- At the beginning of the COVID lockdowns, Congress authorized free breakfast and lunches to students regardless of their family’s income. That authorization will expire on June 30. This will certainly add salt to the inflation wounds, but I don’t think it will affect my Spreads results.
Socioeconomics
- During the 2020 COVID lockdowns, refineries were suspended and the millions of gallons of gas that were in the supply lines were used up. Now, even with our refineries back in full operations, there still remains a critical shortage of gas. Releasing a million barrels of oil a day from the national reserves may help mute the rising oil prices (not volume enough to counter the global oil shortage caused by the Russia/Ukraine war). To help ease some pain, President Biden is asking Congress for a Gas Tax holiday. (Note: Federal Excise taxes on gasoline is 18.3 cents per gallon and 24.3 cents per gallon on diesel fuel.)
- The average duration of a bear market is 289 days and the average S&P 500 decline is 34.8% (should we go into a recession). So if this year’s bear market turns out to be “only average”, then the S&P still has another 11.2% to fall with the projected bottom near 3,100. And from the last S&P 500 high on Jan 3, this bear market should end on Oct 18 (which happens to correspond to the anniversary of Black Monday 1987). But I’m thinking this will not be just an “average” bear (ayy Boo Boo?).
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.
The 4-week trajectory of the VIX Regression Channel took a steep rise higher last week.
- Last week the VIX creped down to 31.13% from 33.18% the week before
- The VIX spent most of the previous two weeks above 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.
Being blind to all other indicators, I will vote for an optimistic DEFCON level 2
VIX votes an optimistic 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.
- The S&P 500’s Put/Call Ratio pulled back from the “Trouble Region” but remains highly nervous
- The 9-Day SMA is well above the 0.75 line, confirming the markets will remain bearish for a while
After a brief pullback from the Trouble line, the S&P 500 Put/Call Ratio moved back up to .83. Even though this is off the .99 level from last week it is showing that the Marketeers are still ducking for cover.
Being solid in the Nervous region, I will reluctantly give this indicator a cautious DEFCON 3 this week.
Put/Call Ratio votes cautious DEFCON 3
Investors’ Sentiment
Marketeers are people too. And when the economy is humming, investments are smoking. Conversely, when the economy is threatening their portfolios, they tend to run for cover.
Consumer Sentiment Index
A low Consumer Sentiment 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)
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 Reactions
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) = 3,675 – down 5.8% from 3,901 last week. (4 weeks deviation: 166 up from 92 last week)
Russell 2000 (RUT) = 1666 – down 7.4% from 1,800 last week. (4 weeks deviation: 80 up from 49 last week)
Four/Two Months Trend (Updated 06/19/2022)
Four/Two Months Trend (Updated 06/19/2022)
Market Performance
4 Weeks Thrashing of SPX = +/- 166 points or 4.5% of the market’s volume is up from 2.4% last week.
4 Weeks Thrashing of RUT = +/- 80 points or 4.8% of the market’s volume is down from 2.7% last week
(Market Thrashing below 1.0% might be a confirmation of the markets moving mostly sideways.)
- 4-week turns downward
- Thrashing jumped significantly
- Both indexes dropped 6%+ over the last week
Both of these indexes took a major hit last week, compounding the major hit from a week ago.
Marketeers are dumping their small-cap assets in what is perceived to be a prolonged bear market.
Being blind to all other indicators, I’ll go with a DEFCON 2.
Market Index votes a DEFCON 2
My sentiment for this coming week:
Of the five indicators:
- Ecopolitical Influencers have many systemic issues – optimistic DEFCON 2
- The VIX is above 30% – optimistic DEFCON 2
- The P/C Ratio showing nervousness – cautious DEFCON 3
- Investors’ Sentiment shows a consumer base not excited about our economic future – dismal DEFCON 2
- The market indexes remain sour – DEFCON 2
All my technical indicators showed depressed Markets.
Trading Readiness Level for this week
This Week’s Guidance
- 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 DeviationEntry Rule 5: Put Short Strike <= 1 Standard DeviationEntry 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 DeviationEntry 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 06/24/2022)
Cash Balance Sheet
| Year 2022 | Month Jun | Week #25 | |
| Beginning Account Balance | $28,000.00 | $16,036.34 | $16,589.04 |
| Deposits (Div. & Int.) | $1.09 | $0.03 | $0.00 |
| Withdraws1, 2 | -$3,152.19 | -$525.00 | -$525.00 |
| Premiums on Open | $11,537.00 | $938.00 | $322.00 |
| Premiums on Close | -20,085.39 | -$47.00 | -$0.00 |
| Fees Paid (total) | -$78.20 | -$20.42 | -$4.09 |
| Ending Account Balance | $16,381.95 | $16,381.95 | $16,381.95 |
| Total Gain/Loss | -$11,775.50 | $345.61 | -$207.09 |
| ROR | 2.2% | -1.2% | |
| ROC | -42.1% |
2 Margin Interest Payments
Cash Flow Chart
Note: Negative weeks 4, 8, 12, and 25 were solely from withdrawing my monthly paycheck. The other negative weeks are from losing positions plus monthly paychecks.
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 | $11,698.09 (Premiums) | 0.41 shares (Dividends Reinvested) |
| Funds Removed | -$20,163.95 (Early Close & Fees) | $0 (Fractional Shares Sold) |
| Market Changes | -$799.00 (Open Spreads’ Fair Market Value ) | -$5,221.36 (Gain/Loss) |
| Ending Balance | $18,735.13 (Mark-To-Market) | $22,778.64 (59.3596 shares * $383.74 CV) |
| ROI | -33.1% | -18.6% |
Schedule for this Week
Goals for this week: (06/21/2022 – 06/24/2022) (Week #25)
- Document lessons learned or new thoughts
- Open one or two Vertical Options Spreads
- 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 12, 2022 (6-8 weeks)
Note: If there are no Options Chains published for the 8-week expiration, then use the next Options Chain down from 8-weeks (7-weeks, 6-weeks). Beyond 4-week expirations, only the monthly chains are available to trade.
- Bull Credit Spreads: Aug 12, 2022 (6-8 weeks)
- Look up Ex-Dividend dates for positions in/approaching ITM (MarketWatch/Calendar)
- Stage possible trades for all watch list stocks by 10:00 AM
- NO TRADING BEFORE 10 AM. (Let the market find its direction after the 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 06/24/2022)
Spread Count Summary:
| Year 2022 | Month Jun | Week #25 | |
| Vertical Bull Put Credit Spreads | 25 | 0 | 0 |
| Vertical Bear Call Credit Spreads | 11 | 4 | 2 |
| Iron Condors | 3 | 3 | 0 |
| Total | 39 | 7 | 2 |
Current Dollars at Risk:
| Year 2022 | Month Jun | Week #25 | |
| Vertical Bull Put Credit Spread | $0. | $0. | $0. |
| Vertical Bear Call Credit Spread | $7,463. | $7,463. | $3,678. |
| Iron Condor | $2,387. | $2,387. | $0. |
| Total Dollar Risk | $9,850. | $9,850. | $3,678. |
| Max Risk Allowed | $28,000. | N/A | $4,000. |
Options Buying Power:
Unallocated dollars available to open new Vertical Credit Spreads:
| Current Cash Balance | $16,381 |
| Set-Aside Dollars for Existing Spreads | -$11,000 |
| Cash Available for New Spreads | $5,381 (Options Buying Power) |
Vertical Spreads Opened This Week
(06/21/2022 – 06/24/2022)
QQQ:325c/335c/X2 – Open 06/21/2022 – Expires 08/19/22 – Max Gain = $162.00 – Open Price = 282.21
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 90.3, Headroom= +15.2%, Max Loss= $1,838, AROR= 53.9%
| Rule # | Y/N | Actual | — Iron Condor — | Entry Rules | |
| Bear Calls | Bull Puts | ||||
| 1 | Y | $8,010 | 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 | $1,838 | 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 |
90.3% |
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 = $323.89 |
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 | N | 59 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 | N | 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 = 4.7% 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. |
|
| Is the 2-week Thrashing > 1% & bearish? | Is the 2-week Thrashing < 1% & bullish? | ||||
| 10 | Y | 1.1 | 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. |
|
| Is the 9-Day SMA below 50-Day SMA? | Is the 9-Day SMA above 50-Day SMA? | ||||
| 13 | Y | 10 |
Is the Strike Width minimum – |
Trade Loss Resistant Spreads. | |
| Any rule not achieved needs to be explained. | |||||
Of my 13 Entry Rules, 2 has failed:
Rule 6: This Expiration Date was a result of not paying attention. I miss read the number of days to expiration as 50 when it was 59.
Rule 8: Tuesday of this week, QQQ had a big bounce back, enough to make the 1-week trajectory go bullish.
SPY:415c/425c/X2 – Open 06/23/2022 – Expires 08/05/22 – Max Gain = $160.00 – Open Price = $376.95
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 89.8, Headroom= +10.0%, Max Loss= $1,840, AROR= 72.9%
| Rule # | Y/N | Actual | — Iron Condor — | Entry Rules | |
| Bear Calls | Bull Puts | ||||
| 1 | Y | $9,850 | 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 | $3,678 | 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 |
89.8% |
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 | N | 1-SD = $415.68 |
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 | N | 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 = 2.7% 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. |
|
| Is the 2-week Thrashing > 1% & bearish? | Is the 2-week Thrashing < 1% & bullish? | ||||
| 10 | Y | 1.4 | 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. |
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| Is the current asset price below the 9-Day SMA? | Is the current asset price above the 9-Day SMA? | ||||
| 12 | N | 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. |
|
| Is the 9-Day SMA below 50-Day SMA? | Is the 9-Day SMA above 50-Day SMA? | ||||
| 13 | Y | 10 |
Is the Strike Width minimum – |
Trade Loss Resistant Spreads. | |
| Any rule not achieved needs to be explained. | |||||
Of my 13 Entry Rules, 3 have failed:
Rule 5: The Short Strike was > 1 point below the 1SD limit. I allowed this with the Prob-OTM at 90%
Rule 8: Tuesday of this week, SPY had a big bounce back, enough to make the 1-week trajectory go bullish.
Rule 12: SPY is having a mini-rally that started last week. This rally is following a steep decline from the week before. This mini-rally has pushed the current price up just slightly above the 9-Day SMA – but the 9-Day SMA is still in a steep decline.
Vertical Spreads Currently Cooking
(As of 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%
Now: Prob. OTM= 92.8%, Headroom= +15.0%
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%
Now: Prob. OTM= 95.9%, Headroom= +14.8%
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%
Now: Prob. OTM= 99.3%c /61.6%p, Headroom= +21.6c% / -3.0%p
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%
Now: Prob. OTM= 99.1%c /71.6%p, Headroom= +25.6c% / -7.2%p
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= 99.6%c /65.6%p, Headroom= +20.3c% / -3.0%p
Vertical Spreads Closed This Week
(As of 06/24/2022)
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)
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
– Damocles
I’m about to make the same mistake again.
Disclaimer
Even though I have tried to make it clear that this blog is my personal trading journal, it has been suggested by others that I, nevertheless, include a general disclaimer. So here goes…
“This blog and the information contained herein 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.”
