The US economy is being swept into a recession. But instead of continuing to pile out of the markets, it appears that fear-fatigue has set in as Marketeers seem antsy to get back in the fray. So, this week is Antsy Trade Trudging.

Antsy Trade Trudging

The US economy is being swept into a recession. But instead of continuing to pile out of the markets, it appears that fear-fatigue has set in as Marketeers seem antsy to get back in the fray. So, this week is Antsy Trade Trudging.

The low-cap equity markets like the Russel 2000 Index (RUT) have shown a steady reinvestment of those assets that were dumped throughout the downturn. The brutalized tech index QQQ is experiencing a short revival. The current asset values of all my Spread and Cover-Calls options inventory are now well above their opening price. Oil prices are collapsing. And the most telling of all – I just got gas at $3.75 a gallon.

Are we in a Bull Trap?

Politicians are downplaying recession fears, while economists are running for cover. Bad economic data is being met with a toothy smile and a dismissive wave of a hand. Treasury Secretary Yellen’s insistence that the slowdown is just a period of “transition” to reasonable economic growth is like saying that high gas prices are just a “transition” into realistic green energy.

Still, most of the significant economic indicators used to measure the temperature of the US Economy continue to retrogress in July. The CPI (the official measure of inflation) jumped 1.3% to 9.1%, the PCE (Fed’s main inflation gauge) spiked another 0.5% over June’s 6.8%, the CSI remains at a historic low of 51.5%, and the 2nd Quarter GDP ushered in the recession as it fell another 0.9% to 1.6%. Yet, the broader markets are basking in a 6-week rally that seems to defy logic.

What gives?

The Inevitability of a Recession

Declaring a recession is a backward evaluation. The NBER (National Bureau of Economic Research) defines a recession as a “significant decline in economic activity that lasted for a few months to more than a year.” But the data points the NBER uses to make this determination cannot be collected until months after the facts. Thus, when the start of a recession is officially recorded by the NBER, the economy has already been in that recession for many months.

As of July 28, 2022, the Bureau of Economic Analysis reported that the second quarter GDP fell another 0.9% after the first quarter GDP fell 1.6%. Most economic journalists now acquiesce that we are in a recession, even though not every “I” has been dotted and every “t” has been crossed. But if it walks like a duck, quacks like a duck…

But as I watch the Marketeers’ reaction to the GDP news this morning seems a little counterintuitive. They appear to see a goose instead of a duck.

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I Think I’m Quite Ready For Another Adventure

Doing and saying things altogether unexpected

Many years ago, I began a thought project – first with musings, then in notes, then by writing. Now I have found that I have already taken my first steps toward a new exciting mental adventure. Now is the time for me to switch gears and be something I always wanted to be – a storyteller.

My new writing project will hopefully consume a lot of time. So beginning this week, I intend to moderate my Trading Journal posts to once a month.

I will still engage in Options selling every week, as it is now a part of my subsistence. And every week, I will still complete my Market Sentiment section and define a DEFCON level for trading. I will record each entry and exit as I make them, but I will hold off publishing my journal until the last Friday of each month.

The journey begins…

The road goes ever on and on.

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 07/25/2022)

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.

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Yikes – Yawns – Yays

• Misery Index rose 0.5% (now 12.7%) – Yikes
• Consumer Sentiment pessimism – Yikes
• Hurricane season is coming – Yikes
• Energy crisis to fuel recession – Yikes
• China’s eco problems are not just COVID – Yikes
• Fed Meeting this Wed (7/27) – Yikes
• Commerce Department releases 2nd Quarter GDP Thursday – Yikes
• Personal Consumption Expenditures price index (PCE) up 6.8% – Yikes

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

• Oil/gas prices falling – Yay
• Strong retail sells mitigating recession fears – Yay
• Is Russia/Ukraine conflict cracking? – Yay

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Geopolitical

• Russia resumes gas delivery to Germany via the Nord Stream pipeline, and a tenuous UN agreement between Russia and Ukraine allowing Ukrainian grain to pass through the Russian Black Sea Blockade suggests behind-the-scenes talks are working. Plus, the appearance that Russia is staging the possibility of annexing the eastern industrial region of Ukraine and then calling it quits signals that the Russia/Ukraine crisis may be coming to a close (bad for Ukraine but good for world peace).

• Lots of headlines are prophesying the upcoming global energy crisis. As the climate activists trace around the world unplugging coal plants, plugging up natural gas plants, and switching off nuclear plants – they are now panicking about the energy shortages that they deliberately caused. The “create the pain to cause the change” campaign is fueling the prospects of a recession.

• China’s Zero-COVID Policy continues to cause major disruptions in the world’s supply chain. Shanghai, China’s largest port city, was locked down tight for almost two months recently, with other cities shuttered as well. When factories reopen and try to make up for lost production, shipping networks will overload. With the latest highly contagious COVID variant (BA.5), it will be critical to see what the Communist Party will dictate for their country. As dependent as we (and much of the world) are on Chinese-made components, this has resulted in shortages and prospective buyers bidding up the prices of what products remain. 

• Beyond COVID, China is also dealing with a hyper-leverage real estate market – which makes up nearly 30% of its GDP.

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Socioeconomics 

• Most of the significant economic indicators used to measure the temperature of the US Economy continue to retrogress in July. The CPI (the official measure of inflation) jumped 1.3% to 9.1%, the PCE (Fed’s main inflation gauge) spiked another 0.5% over June’s release to 6.8%, the CSI remains at a historic low of 51.1%, and the 2nd Quarter GDP ushered in the recession as it fell another 0.9% to 1.6%. Yet, the broader markets are basking in a 6-week rally that seems to defy logic.

• Oil has declined since its May peak at near $120 and is now below $97/bbl in a hugely wild price ride. Likewise, gas prices have fallen from their June high (national average over $5.00 gallon down to $4.52). Both are signaling that gas may have peaked and now heading below $4/gal.

• Higher interest rates and brutal inflation will continue to put pressure on Corporate earnings throughout this year. I expect to see short rallies here and there (Bull Traps), as there appears to be fear-fatigue in the Marketeers.

• The Federal Reserve is scheduled to meet this week to vote on the next round of interest rate hikes and to publish their current assessment of our economy. It is widely expected that they will maintain the current 0.75% bump, and the Marketeers are ok with that. But an aggressive tone by Chairman Powell after Wednesday’s Federal reserve meeting can tip the Markets to new lows.

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

Bull Watch Index = 2.0, up from 1.6 last week.

The systemic pressures on the markets have improved slightly as the Bull Watch Index is now up to 2.0 from 1.6 in the previous weeks and 1.5 in the week prior to that. 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 continues towards less volatility over the past four weeks.

• Last week the VIX ended slightly down at 23% from 24% last week before
• The current VIX continues below the 9-Day and the 120-Day SMA
• The 9-Day SMA has fallen below the 120-Day SMA

The VIX’s Thrashing has moderated over the past 4 weeks as it continues to move lower. This is still way above 15% but seems a little less crazy.

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 rose steadily this past week.
• The 9-Day SMA remains above the 0.75 line, suggesting a slight market change.

The ratio rose fairly steadily last week to peak just at 0.77.

The Marketeers bought more 30-day protective Puts to hopefully lock in the gains for the past month. This is not huge but may indicate that most Marketeers are not so confident that the past six weeks’ gain might not keep.

Being all so slightly 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 consumers 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)

July’s preliminary results remained relatively flat from June’s report. But yet still remaining at a near all-time low. This continues to show the general doldrums of consumers’ attitudes to the current fiscal situation. But slightly more telling is the very slight bump with Consumer Sentiment, Consumer Expectations slightly fell. There does not seem to be any expectations that things will get better soon.

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 1.3% in June. Now up to 9.1% from a year ago.
• Unemployment Rate: Jun rate = 3.6%. Unchanged from 3.6% in May.

Misery Index = 12.7% (9.1% + 3.6%). up from 12.2% 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) = 3,962 – up 3.6% from 3,825 last 2 weeks. (4 weeks deviation: 61 up from 57 last 2 week)
Russell 2000 (RUT) = 1,807 – up 4.6% from 1,728 last 2 week. (4 weeks deviation: 37 up from 28 last 2 week)

Market Performance

4 Weeks Thrashing of SPX = +/- 61 points or 1.5% of the market’s volume is flat from 1.5% last 2 weeks. Trajectory angle = +12.8º
4 Weeks Thrashing of RUT = +/- 37 points or 2.0% of the market’s volume is up from 1.6% last 2 weeks Trajectory angle = +11.5º
(Market Thrashing above 1.0% might indicate indecision for the Marketeers.)
(Trajectory angle of < 10º might indicate a sideways market.)

• Trends are mixed with the shorter terms bullish
• Thrashing fallen below 2.0%
• 9-Day SMAs are bullish
• Both 120 and 60-day trends continue to rotate bullishly

This current 30+ day rally is different from the previous rallies (Bull Traps) this year. This rally shows a much lower deviation – showing that it is not driven by wild swings. This may suggest that the Marketeers might be settling in on the new bullish trajectory. (Although I must note that the deviations are still above 1%, so I can’t read too much into it.)

The Russel 2000 rally is encouraging, as Marketeers are starting to buy back into higher-risk stocks (assets that are usually first dumped and last bought).

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 in a bull rally – cautious DEFCON 3

All my technical indicators showed depressed Markets.

Trading Readiness Level for this week

CautiousDEFCON 3

This Week’s Guidance

For the first time in a long while, I am assessing this week as a DEFCON 3.

It may be an issue of “fear fatigue” setting in, but the general trends of the technical indicators are starting to calm down while the eco-political events continue to pile. This may be a sign that the markets have mostly reached their depletion level (the bottom) and may start moving mostly sideways.

1. Open 1 or 2 Spreads
2. Be cautious of Bear Spreads as the markets may be starting a light bull run
3. Be cautious of Bull Spreads as the risk of a downturn is still high

Entry Rules

Vertical Bear Call Credit Spread (DEFCON 1, 2):

(No Bull Spreads)

• 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):

(No Bear Spreads)

• Entry Rule 3: Prob-OTM >= 90%
• 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 07/29/2022)

Cash Balance Sheet

	Year 2022	Month Jul	Week #30
Beginning Account Balance	$28,000.00	$16,656.05	$16,767.07
Deposits (Div. & Int.)	$1.42	$0.13	$0.05
Withdraws1, 2	-$3,677.19	-$525.00	-$525.00
Premiums on Open	$12,346.00	$669.00	$298.00
Premiums on Close	-20,090.20	-$7.00	-$0.00
Fees Paid (total)	-$91.99	-$11.22	-$4.08
Ending Account Balance	$16,781.96	$16,781.96	$16,781.96
Total Gain/Loss	-$11,218.04	$125.91	-$231.03
ROR		-1.0%	-1.4%
ROC	-40.1%

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?

	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	$12,645.42 (Premiums)	0.41 shares (Dividends Reinvested)
Funds Removed	-$20,186.27 (Early Close & Fees)	$0.00 (Fractional Shares Sold)
Market Changes	-$1,679.50 (Open Spreads’ Fair Market Value )	-$3,775.07 (Gain/Loss)
Ending Balance	$18,779.65 (Mark-To-Market)	$24,224.93 (59.3596 shares * $404.33 CV)
ROI	-32.9%	-13.5%

Schedule for this Week

Goals for this week: (07/25/2022 – 07/29/2022) (Week #30)

• 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 16, 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 07/29/2022)

Spread Count Summary:

	Year 2022	Month Jul	Week #30
Vertical Bull Put Credit Spreads	25	0	0
Vertical Bear Call Credit Spreads	13	0	0
Iron Condors	8	5	2
Total	46	5	2

Note: no new Spreads this week.

Current Dollars at Risk:

	Year 2022	Month Jul	Week #30
Vertical Bull Put Credit Spread	$0.	$0.	$0.
Vertical Bear Call Credit Spread	$7.400.	$0.	$0.
Iron Condor	$4,331.	$4,331.	$1,702.
Total Dollar Risk	$11,731.	$4,331.	$1,702.
Max Risk Allowed	$28,000.	N/A	$4,000.

Note: no new Spreads this week.

Options Buying Power:

Unallocated dollars available to open new Vertical Credit Spreads:

Current Cash Balance	$16,781.96
Set-Aside Dollars for Existing Spreads	-$13,000
Cash Available for New Spreads	$3,781.96 (Options Buying Power)

Vertical Spreads Opened These Two Week

(07/18/2022 – 07/22/2022)

SPY:340c/425c/435p/330p/320p/X1 – Open 07/26/2022 – Expires 09/16/22 – Max Gain = $148.00 – Open Price = 391.36
(Iron Condor)
At Open: Prob. OTM= 88.1%c/91.2%p, Headroom= +8.7%c/-15.6%p, Max Loss= $852, AROR= 120.3%

Rule #	Y/N	Actual	— Iron Condor —		Entry Rules
			Bear Calls	Bull Puts
1	Y	$10,881	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	$852.00	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	88.1%c 91.2%p	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 = $427.69c $353.55p	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	52 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	N -8.8º Both 14 & 30 Days are bullish	See Chart	Is the 60-Day Trend Channel mostly sideways < (+/- 10º 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/A	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	N/A	See Chart	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	N	1.8 up from 1.3	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.
			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	N/A	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	N/A	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 – 1 Contract: (>= 20)? 2 Contracts: (>= 10)?		Trade Loss Resistant Spreads.
Any rule not achieved needs to be explained.

 

QQQ:340c/350c/270p/260p/X1 – Open 07/28/2022 – Expires 09/09/22 – Max Gain = $148.00 – Open Price = 307.57
(Iron Condor)
At Open: Prob. OTM= 90.0%c/86.1%p, Headroom= +10.5%c/-12.3%p, Max Loss= $850, AROR= 147.8%

Rule #	Y/N	Actual	— Iron Condor —		Entry Rules
			Bear Calls	Bull Puts
1	Y	$11,731	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	$1,702	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	90.0%c 86.1%p	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 = $338.04c $277.40p	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	N 1.6º Both 14 & 30 Days are bullish	See Chart	Is the 60-Day Trend Channel mostly sideways < (+/- 10º 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/A	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	N/A	See Chart	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	N	1.3 up from 1.3	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.
			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	N/A	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	N/A	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 – 1 Contract: (>= 20)? 2 Contracts: (>= 10)?		Trade Loss Resistant Spreads.
Any rule not achieved needs to be explained.

 

QQQ:340c/350c/260p/250p/X1 – Open 07/22/2022 – Expires 09/02/22 – Max Gain = $124.00 – Open Price = 306.92
(Iron Condor)
At Open: Prob. OTM= 90.3%c/90.0%p, Headroom= +10.8%c/-15.2%p, Max Loss= $876, AROR= 121.0%

Rule #	Y/N	Actual	— Iron Condor —		Entry Rules
			Bear Calls	Bull Puts
1	Y	$12,888	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	$1,750	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%c 90.0%p	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 = $330.01c $281.00p	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	42 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	N 3.5º Both 14 & 30 Days are bullish	See Chart	Is the 60-Day Trend Channel mostly sideways < (+/- 10º 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/A	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	N/A	See Chart	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	N	1.9 up from 1.3	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.
			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	N/A	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	N/A	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 – 1 Contract: (>= 20)? 2 Contracts: (>= 10)?		Trade Loss Resistant Spreads.
Any rule not achieved needs to be explained.

 

Of my 13 Entry Rules, 3 have failed:

• Rule 7: Both shot term trajectories are bullish.
• Rule 10: Put/Call Ratio above 1 and rising.
• Rule 13: I am running short of available cash to risk. I want to split the available cash, so I can enter into 2 Spreads this week.

It appears that the Bulls have the QQQ. But I feel this is more of a Bull Trap than a market rebound.

QQQ:325c/335c/250p/240p/X1 – Open 07/19/2022 – Expires 08/26/22 – Max Gain = $126.00 – Open Price = 292.83
(Iron Condor)
At Open: Prob. OTM= 90.6%c/89.6%p, Headroom= +11.0%c/-14.9%p, Max Loss= $872, AROR= 138.8%

Rule #	Y/N	Actual	— Iron Condor —		Entry Rules
			Bear Calls	Bull Puts
1	Y	$15,745	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	$874	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	90.6%c 89.6%p	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 = $326.04c $264.24p	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	38 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	N 7.6º Both 14 & 30 Days are bullish	See Chart	Is the 60-Day Trend Channel mostly sideways < (+/- 10º 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/A	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	N/A	See Chart	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	1.2 dn from 1.3	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.
			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	N/A	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	N/A	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 – 1 Contract: (>= 20)? 2 Contracts: (>= 10)?		Trade Loss Resistant Spreads.
Any rule not achieved needs to be explained.

 

Of my 13 Entry Rules, 2 have failed:

• Rule 7: Both shot term trajectories are bullish.
• Rule 13: I am running short of available cash to risk. I want to split the available cash, so I can enter into 2 Spreads this week.

It appears that the Bulls have the QQQ. But I feel this is more of a Bull Trap than a market rebound.

Vertical Spreads Currently Cooking

(As of 07/29/2022)

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%
Now: Prob. OTM= 90.6c%/93.1p, Headroom= +7.1c%/-13.6%p

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%

Vertical Spreads Closed This Week

(As of 07/29/2022)

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%
At Close: Prob. OTM= 95.5%, Headroom= +5.8%

Income to open: $0.47 premium collected * 100 shares * 3 contracts = $141.00
Cost to close: $0.00 premium paid * 100 shares * 3 contracts = $0.00 (closed closed worthlessly)
Net Profit = $141.00 to open – $0.00 to close – $3.00 fees = $138.00
AROR = ($138.00 / 43 days in play) *365 / $2,859.00 = 41.0%

SPY:445c/455c/355p/345p/X1 – 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= $855.00, AROR= 138.7%
At Close: Prob. OTM= 99.9%c/99.9%p, Headroom= +11.5c%/-11.0%

Income to open: $1.45 premium collected * 100 shares * 1 contracts = $145.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed closed worthlessly)
Net Profit = $145.00 to open – $0.00 to close – $2.00 fees = $143.00
AROR = ($143.00 / 44 days in play) *365 / $855.00 = 138.7%

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 /99.4%p, Headroom= +13.2c% / -16.4%p

Income to open: $1.22 premium collected * 100 shares * 1 contracts = $122.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed closed worthlessly)
Net Profit = $122.00 to open – $0.00 to close – $2.00 fees = $120.00
AROR = ($120.00 / 45 days in play) *365 / $878.00 = 110.9%

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.”