The Progressive movement is primarily about ushering in a socialist economy. This has been a movement for many years, and the COVID crisis gave the movement the bold opening it needed. Has the Progressive movement unleashed an economic Ragnarok?

Ragnarok – The Progressive Economy

In this week’s abbreviated post, I wanted to highlight the importance of how Ecopolitical Events can be my most important influencer in making a sustainable income from Vertical Options Spreads. Ecopolitical forces can dramatically change a market trajectory and the outcome of my Spread inventory. Therefore, I need to keep a close eye on them.

This year, the most influential ecopolitical force on the market today is Washington’s attempt to reengineer the US Economy towards Socialism. These policies did not cause our inflation, but it is complicating recovery.

The Progressive movement (and the Woke Agenda) is primarily about ushering in a socialist economy. This has been a movement for many years, and the COVID crisis gave the movement the bold opening it needed.

The sugar-high we received from over $5 trillion in COVID stimulus spending (including over $1.8 trillion sent directly to individuals), plus the expected $5 trillion Build Back Better bill, was to lay the foundation for a rush to Socialism (never let a good crisis go to wastes). But it did came with some unintended consequences.

So far, the result has been Americans, with plenty of stimulus-fueled cash to spend, overwhelming the supply chain and purging existing inventories. And the unintended consequence of expanded government services provided by the various COVID Stimulus bills was to deter the need for the general workforce to rush back to work. Thus, rebuilding our depleted inventory fell way short, and now we have the worst inflation since 1979 (hello, Jimmy Carter).

What caused this round of inflation was our national response to the COVID pandemic. The 2020 lockdowns and the trillions of dollars poured into our economy (justified or not, supportive or not) were the catalysts making inflation inevitable. Both the Trump and Biden administrations are culpable. But the severity of this inflation lies squarely on Progressive politics and their drive to remake the US economy.

Has the Progressive movement unleashed Ragnarok?

Hulk, no!
Just for once in your life,
don’t smash!

– Thor (Movie: Thor: Ragnarok)

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 06/27/2022)

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

• June’s CPI on Wednesday – Yikes
• June’s PPI on Friday – Yikes
• Russia to escalate Ukraine offensive – Yikes
• China’s Zero-COVID 2.0 – Yikes

• Build Back Better 4.0 – Yawn
• Election scaremongering falling flat – Yawn

• Stronger than expected Jobs numbers – Yay
• Unemployment remains low at 3.6% – Yay
• WTI Oil presses below $100/bbl – Yay
• Gas prices continue to fall – Yay

Geopolitical

• Russia now controls most of the eastern side of Ukraine (note, most of this region had been held by pro-Russian separatists before the war began). Signaling an operational pause to regroup, resupply, consolidate, refresh intel, and adjust orders, all implies preparations for a new Kyiv offensive. This signals the war will continue for a long while. All this suggests that heavy sanctions from the Western allies will continue and may even increase. Supply chains and critical world resources are still in peril. – (Bull Watch 1: 2 out of 5) 

• China started reopening its critical commerce regions of Shanghai at the start of June, as it has been functionally shut down for nearly two months under China’s Zero-COVID policy. But an outbreak of a new variant of Omicron was discovered, and now mass testing has been ordered. Macao has also been ordered to close as the city of 680,000 people reported 1,500 cases. Seems like China will continue to struggle economically – which is bad for the global economy. – (Bull Watch 3: 2 out of 5)

• Early on, the dominant 2024 mid-term’s talking point for the mainstream media was to fixate on how we will lose all semblance of democracy, and all our Constitutional rights would vanish should the fascists’ Republicans win power back. But now, most of the DNC Talking Heads have shrugged off that line of attack as ineffective. The new media’s click-generator is to watch the Biden/Harris administration implode. Biden appears to be succeeding in his campaign promise of being a unifier as he is now unifying both sides against him.

Socioeconomics 

• The Democratic leadership in the Senate is hoping to rekindle new life in their economic ambitions before the mid-term elections. Out of the rubble of their Build Back Better disaster, Dem leaders have cobbled together a few of the lesser extreme objectives from their first and second go-rounds to present to a divided Senate. New agreements for lowering drug costs for seniors, extending the solvency of Medicare, closing some tax loopholes, and whittling down emission caps. This new effort’s price tag is much smaller than the $2 trillion BBB 2.0 and the gargantuan $5 trillion original bill. If done right, this new version could be more of an inflation fighter than an inflation feeder.

• Last Friday’s Jobs Report was stronger than expected. Adding 372,000 jobs in May was substantially lower than the 450,000-ish jobs added in April but still much higher than the 250,000 expected. (Note: pre-pandemic Jobs reports of 150,000 – 200,000 were considered strong gains.) This may signal to the Feds that their aggressive posture for combating inflation may not have a recessionary effect. Although this report was good news, the US is still far under the pre-pandemic employment level. So the 3.6% unemployment is measured against the current labor force, which still remains significantly less than pre-pandemic.

• June’s Consumer Price Index (CPI) and Producer Price Index (PPI) will be published this Wednesday and Friday. These reports will give us the first hints if the Fed’s hawkish policies are lowering inflation. – (Bull Watch 2: 1 out of 5)

• Both oil and gas prices are continuing their 1-month decline. WTI oil has dripped down to $99.18/bbl as of this morning, and the national average for gas is $4.72 as of July 8. – (Bull Watch 4: 2 out of 5)

Bull Watch

To avoid being caught off guard when the markets start a turnaround, I want to keep my eye on a few key indicators. In my post “5 Things To Happen Before The Bull Market Can Return,” I listed these items to keep an eye out for. I will rate each on a scale of 1 to 5. The closer we move towards 5, the quicker the bulls should return.

1. War in Ukraine: (2 out of 5)
2. Inflation; (1 out of 5)
3. China has to reboot: (2 out of 5)
4. Oil prices have to drop: (2 out of 5)
5. Consumer Sentiment: (1 out of 5)

Bull Watch Index = 1.6

The systemic pressures on the markets have improved slightly as the Bull Watch Index is now up to 1.6 from 1.5 in the previous weeks. this is encouraging as we seem to be moving in the right direction.

ETS votes an optimistic 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 significantly tilted towards less volatility over the past 4 weeks.

• Last week the VIX ended slightly down at 25% from 28% the week before
• The VIX spent most of the previous two weeks below the 30.0% line
• The current VIX dropped sharply below the 9-Day and the 120-Day SMA
• The 9-Day SMA is barely above the 120-Day SMA

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

VIX above 30% is my demarcation for a DEFCON 2. But to get back to a DEFCON 3, the VIX needs to be below 30, and the 14-Day trajectory needs to move towards less volatility (which it is)

Being blind to all other indicators, I will vote for a cautious DEFCON 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 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 droped back below the 0.75 line.
• The 9-Day SMA remains below the 0.75 line, suggesting a slight market change.

The Put/Call Ratio moved into the “Good Shape” region after a week of fairly good market days. The current ratio of .69 is below 0.75, and the 9-Day SMA is now a smidgen below the 0.75 line.

Being all so slightly in the Good Shape region (or more specifically, not in the Nervous region), I will give this week’s indicator a cautious DEFCON 3.

Put/Call Ratio votes a 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 final results weren’t too much different from the preliminaries reported two weeks ago. But it is still over 14% down from last month and over 41% down from last year. 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).

(Note, as I write this on Monday, the revised inflation rates have not been published.)

• Inflation Rate: rose 1.0% in May. 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 Trajectories

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 in 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) = 3825 – down 2.2% from 3912 last week. (4 weeks deviation: 72 down from 150 last week)
Russell 2000 (RUT) = 1728 – down 2.2% from 1766 last week. (4 weeks deviation: 37 down from 80 last week)

Market Performance

4 Weeks Thrashing of SPX = +/- 72 points or 1.8% of the market’s volume is down from 3.9% last week.
4 Weeks Thrashing of RUT = +/- 80 points or 4.5% of the market’s volume is down from 4.6% last week
(Market Thrashing below 1.0% might be a confirmation of the markets moving mostly sideways.)

• All trends continue decisively bearish
• Thrashing is high but falling
• 9-Day SMA is bullish

The 60-Day Trend Channel for both SPX and RUT rotated bullish. Additionally, the 9-Day SMA, the 2-week trajectory, and the 14-day trajectory continue to be bullish.

The 4-week thrashing of the S&P 500 fell pretty dramatically, but the 4-week thrashing for the Russell 2000 remained high. (RUT’s high thrashing was primarily determined by the first week of the channel. If I had only measured the last 3 weeks, thrashing would have been only 1.8%.)

The past 4 weeks suggest the Marketeers are getting back into the highlier volatile small-cap stocks and are becoming more comfortable with the bullish trajectory. But the 4-week thrashing for both assets still remains above 1. So, this may be the start of a sideways moving market.

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:

• Ecopolitical Influencers have many systemic issues – optimistic DEFCON 2
• The VIX is above 30% – cautious DEFCON 3
• The P/C Ratio is in good shape – cautious DEFCON 3
• Investors’ Sentiment shows a consumer base not excited about our economic future – dismal DEFCON 2
• The market indexes remain bearish – cautious DEFCON 3

All my technical indicators showed depressed Markets.

Trading Readiness Level for this week

Optimistic DEFCON 2

This Week’s Guidance

• Some of the Ecopolitical Influencers are showing signs of relaxing. The aggressive bear trajectory may start to slow.
• Due to my epic losses in May, my Options Buying Power (OBP) is down to $1,656. I am limited to what I can open until other spreads can exit.

1. Open one Vertical Bear Call Credit Spreads (limited to OBP)
2. Open one Iron Condor (limited to OBP)

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 >= 10 (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 07/15/2022)

Cash Balance Sheet

Note: no new Spreads opened this week.

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?

Schedule for this Week

Goals for this week: (07/11/2022 – 07/15/2022) (Week #28)

• Document lessons learned or new thoughts in Commentary Section
• Open one or two Vertical Options Spreads
• Update Trading Log as trades occurs

Monday:

• Determine/update this week’s market sentiment section
• Review/tweak Trend-Channels for all stocks on the watch list
• Set target expiration dates for all Options as follows:
  • Bull Credit Spreads: Sept 2, 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).
• 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.)

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.
• Watch one Webcast or take one online mini-course to be completed by Friday.

This Week’s Trade Activity

(As of 07/15/2022)

Spread Count Summary:

Note: no new Spreads this week.

Current Dollars at Risk:

Note: no new Spreads this week.

Options Buying Power:

Unallocated dollars available to open new Vertical Credit Spreads:

Vertical Spreads Opened This Week

(07/11/2022 – 07/15/2022)

DIA:335c/345c/270p/260p/X1 – Open 07/12/2022 – Expires 08/26/22 – Max Gain = $121.00 – Open Price = 311.81
(Iron Condor)
At Open: Prob. OTM= 88.8%c/90.5%p, Headroom= +7.4%c/13.6%p, Max Loss= $879, AROR= 109.8%

Of my 13 Entry Rules, 4 has failed:

• Rule 5: This rule was overridden by the high Prob-OTM value. Lowering the POTM below 90% (and keeping above the 85% guidance) dropped the Short Call Strikc below 1SD.
• Rule 7: This rule was totally overlooked when I submitted the order.
• Rule 10: This rule was also overlooked.
• Rule 13: I am running short of available cash to risk. No Spreads are scheduled to close this week.

After completing this rules table, it appears that the Bulls have the DIA. But I feel this is more of a Bull Trap than a market rebound. Inflation numbers are coming out this week, and they are projected to be worse than predicted. I’m thinking that once they come out, the markets will return to an aggressive bear. But apparently, I am the only one who is thinking this since DIA has been on the rise both yesterday and today.

Vertical Spreads Currently Cooking

(As of 07/08/2022)

QQQ:320c/330c/X2 – Open 06/29/2022 – Expires 08/19/22 – Max Gain = $158.00 – Open Price = 281.85
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 89.8, Headroom= +13.5%, Max Loss= $1,842, AROR= 60.6%
Now: Prob. OTM= 92.6%, Headroom= +11.6%

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%
Now: Prob. OTM= 94.3%, Headroom= +13.4%

DIA:335c/345c/X2 – Open 06/30/2022 – Expires 08/12/22 – Max Gain = $120.00 – Open Price = 307.90
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 91.3, Headroom= +8.8%, Max Loss= $1,880, AROR= 53.3%
Now: Prob. OTM= 97.0%, Headroom= +9.4%

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%
Now: Prob. OTM= 97.3%, Headroom= +9.8%

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= 98.4%, Headroom= +12.1%

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= 99.9%c /93.4%p, Headroom= +17.8c% / -6.1%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= 99.9%c /97.5%p, Headroom= +20.3c% / -11.0%p

Vertical Spreads Closed This Week

(As of 07/15/2022)

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%
At Close: Prob. OTM= 98.9%, Headroom= +11.6%, AROR= 91.5%

Income to open: $0.74 premium collected * 100 shares * 1 contracts = $74.00
Cost to close: $0.07 premium paid * 100 shares * 1 contracts = $7.00 (closed 16 days early)
Net Profit = $74.00 to open – $7.00 to close – $2.00 fees = $65.00
AROR = ($65.00 / 28 days in play) *365 / $926.00 = 91.5%

This Spread was closed 16 days early via a 90% of max gain 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.”