After 2022, Painful Experience will have to be approbation enough. But with a little prestidigitation, this month’s journal entry intends to define my Budget, Goals, Mission Statement, and new Entry/Exit rules for 2023 – Zimzalabim!
Table of Content
- Commentary – Budget for Vertical Options Spreads
- This Week’s Market Sentiment
- Profit and Loss Statement
- Schedule for this Week
- This Week’s Trade Activity
Options Traders often lose– Damocles
what they gained
Budget for Vertical Options Spreads
2023 will be my 5th year in Options Trading. During the first three years, I learned mechanics, analysis, and strategies. In 2022, I learned humility. This coming year, I want to put it all together and become a better magician – Zimzalabim!
Even though 2022 was mostly a debacle (in many ways), I did learn a few lessons. One of which was when NOT to play (Selling Vertical Spreads – The Kenny Rogers Strategy), and another was driving home the Law of Large Numbers. 2022 was also a good time to revisit the Vertical Spread Assignments – The Good The Bad and The Ugly – since I did plenty of that!
But I do not want to be deterred in 2023, even though I expect our recession will continue through (most of) the year. So, this month’s journal entry intends to define my goals, budget, and how I want to manage the risk for 2023.
2023 Market Assumption
Before filling in the blanks on my 2023 budget spreadsheet, I need to consider what I think next year will be like. This is the only time of the year when I will pull out my crystal ball and try to see what awaits me.
I do think most of the Market’s damage caused by the ongoing recession has already been done in 2022. And even though I believe that 2023 will lack the aggressive growth of 2021, a lot of cash now on the sidelines will slowly make its way back into play next year – making the end of the year better than the beginning.
A New Congress
The new year will usher in a bitterly divided U.S. Congress – a bit less Woke, a bit more growth focus, and a lot more gridlock. I suspect the remainder of Biden’s Build Back Better projects are now history. And only watered-down legislation will pass a highly partisan Congress.
Also, for the next two years I will expect epic year-end government funding battles that will (as always) threaten government shutdowns. These funding battles always affect the Markets badly, as the Markets hate uncertainties.
The change in Congress next year increases the likelihood that little new legislation will pass amid gridlock. And gridlock, ironically, has historically been bullish for stocks as it removes some policy uncertainty.
The S&P 500 has generally been positive in the first year following midterm elections. Since 1950, the average first-year return has been about 15%.
Generally, I am optimistic that 2023 will be a decent year for Vertical Bull Spreads. But I am not confident about when that decency will start.
realizing that you are about to make the same mistake –
My primary goal for Options Trading is to develop a post-W2 home business that will:
- Outperform the ETF SPY
- End the year with a Trading Account profit
- Supplement my investment income
- Keep me stimulated and busy
2023 Mission Statement
My Options Trading activities include Cover Calls, Cash-Secure Puts, Vertical Spreads, and other Options strategies. Cover Calls and Cash-Secure Puts assume that I already have a sizable portfolio and accumulated cash to generate a meaningful income. But short-term Vertical Spreads do not require a substantial cash investment to make some fun money. – This blog’s sole focus is short-term Vertical Spreads.
I want to learn something, earn something, contribute something –– Damocles’ Mission Statement
and have fun doing something.
Strategy for New Vertical Spreads
When the Markets are doing well, Vertical Credit Spreads can do a magnitude better. Conversely, when the Markets are doing poorly, Vertical Credit Spreads can do a magnitude worse. And when considering volatility, when the Markets go from good to bad, it may not be possible to save open Spreads. So I need to be confident that a Bull Market will stay bullish during the life of any Vertical Bull Put Credit Spreads I open.
No battle plan survives first contact with the enemy.Colin Powell
This coming year, I’m going to bank primarily on the market’s inclination to rise (See: How To Make Loss Resistant Vertical Spreads – Market Force) – which means I need to wait until the bull market return. So, as a Rule-of-Thumb, I’ll consider opening a new Vertical Bull Put Credit Spread under these conditions:
|Unfriendly Spread||Risky Spread||Friendly Spread|
|DEFCON||1 or 2||3 or 4||4 or 5|
|Underlying’s Put/Call Ratio||> 1.5||< 1.5||< 0.85|
|Underlying’s IV%||> 50%||< 50%||< 20%|
|VIX||>25%||< 25%||< 18%|
|9-Day SMA||below 50-Day SMA||above 50-Day SMA||above 50-Day SMA|
|50-Day SMA||below 200-Day SMA||below 200-Day SMA||above 200-Day SMA|
|60-Day Trend Channel||bearish||bullish||bullish|
|Strike Width||–||10 – 20||5 – 10|
|Short Strike Prob OTM||–||> 90%||75% – 90%|
|# Spreads per Week||0||1 – 2||2+|
(Note: These Entry Rules are just a starting suggestion prior to the start of 2023. All rules will be refined at the start of each week.)
This year, I want to focus on being comfortable with a reasonable set of Exit Rules. I have a decent Exit Rule matrix in my post Exit Rules: Vertical Credit Spreads – PT 2, but I want to refine these rules based on what I’ve observed in the Bear Market of 2022.
In 2023, I’m going to consider how I can use AROR as an Exit Rule guide.
Technically, I can consider a Vertical Bull Put Credit Spread a winner when the Current AROR is greater than the Opening AROR
An annualized rate of return (AROR) is calculated as the equivalent annual return of a short-term Vertical Spread. See my post How To Annualize ROR for Vertical Spreads for instructions on how to calculate.
When I stage a new Vertical Spread in my Excel Watchlist, it automatically calculates an opening AROR (cell U21) from the opening date until expiration. As a baseline, this AROR percentage is my expected ROI at expiration. If the running AROR (cell AB21) exceeds the opening AROR, then I am doing better than expected and should consider closing the Spread. (Changing Watchlist’s cell F26 to: =IF(AB21>U21,”SELL”,”Watching…”)
In the example above, the DIA Spread’s opening AROR was 21.3%. So after 44 days, my expected annualized return on my $2,000 would be 21.3% (or $51.00). But, 12 days after entering into this position (a little less than a quarter of the time), the AROR rose to 24.5%. Thus, I exceeded my expected performance, and now I need can consider if I should exit the position 23 days early (cell G22) for a take-home premium of $27.50 (cell AA21). This is less than the $51.00 (cell AA23) projection if the Spread expires worthlessly, but I gained these benefits: (A bird in the hand is worth two in the bush!)
- I am no longer at risk of a market downturn
- I no longer have two thousand dollars tied up
- I can open a new Vertical Spread sooner and accumulate more premiums
(Note: This Exit Rule is just a starting suggestion prior to the start of 2023. All rules will be refined at the start of each trading week.)
2023 Budget for Vertical Options Spreads
My initial investment for my 2023 Trading Account will be a full year’s commitment. I will view this as any other risky buy-and-hold stock investment I would make. The amount will not be more than I can afford to lose (this is not from my children’s college fund, my retirement savings, or my emergency cash). And I will not depend on this money during the year (I won’t rely on my trading account to pay my monthly mortgage)
This table is the input and calculations for my spreadsheet.
|Item||Parameters or Equation||Results|
|Average Max Risk per Week 1||$2,000||$2,500|
|Maximum Spread Term 2||8 weeks||8|
|Estimated Starting Capital 3||= Risk per week * Max Spread Term||$20,000|
1 Average Max Risk per Week: Defining the maximum dollar amount I am willing to risk weekly, averaging out across the month. The Spreads Configuration will depend on current market conditions.
2 Maximum Spread Term: Need a) time to fortify collected premiums or b) time to recover for a wrong-way market. If the term is longer than 8 weeks, then I would need to either reduce the number of Spreads or increase my starting capital – both of which I don’t want to do. If the term is less than 6 weeks, then the premiums collected may not be worth the dollars at risk.
3 Estimated Starting Capital: The total amount of money I need to invest in my trading account on Jan 1, 2023. The beginning estimate is based on the 2022 end-of-year balance of my account plus an incremental increase to scale everything up.
Expected End-of-Year Results
The question I have to answer by the end of 2023: “What would have been more profitable: invest in an Index ETF or in a trading account where I sell Vertical Bull Put Credit Spreads?”
- The year-end balance in my trading account should match or be better than an equal investment in SPY.
- At worst, my end-of-year Trading Account balance should be higher than the start-of-year balance.
To be at all competitive, I would have to be highly active in selling Vertical Bull Put Credit Spreads for the year (which my 2023 Options Spreads Budget assumes.)
To celebrate Halloween, I was going to go to a 200-year-old building that was apparently set up with shriveled-up old corpses, dangerous bandits, bloodsucking vampires, hellbent soulless demons, and the like. But it turns out the Capitol Building is closed for tours until after the mid-term elections.
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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 mostly old news.
(As of 11/25/2022)
This section reviews four indicators:
Then, I will use these indicators to help guide my trading decisions for this week.
Each of my four 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 (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
- Fed hikes interest rates another 0.75% – Yikes
- Oct’s Jobs/Payrolls Report up – Yikes
- Unemployment inches up to 3.7% – Yikes
- North Korea feint invasion – Yikes
- Year ends with massive corporate layoffs – Yikes
- UK enters austerity to combat recession – Yikes
- Beijing back in COVID Lockdowns – Yikes
- Misery Index 11.7% – Yay(-ish)
- Oct’s Jobs/Payrolls Report up – Yay
- Unemployment inches up to 3.7% – Yay
- Divided Congress – Yay
- Ukraine/Russia conflict winding down? – Yay
- Producer Price Index (PPI) up 0.2% – Yay
- WTI Oil below $80/bbl – Yay
- North Korea launched its largest provocation of war by sending some 180 warplanes along the DNC line and 23 missiles toward South Korea (including one intercontinental ballistic missile to fly over Japan). A day ago, Pyongyang sent a ballistic missile over South Korea, landing just east of Seoul. Moreover, there’s still an expectation of a nuclear warhead test, as Kim Jong-Un has threatened to use nuclear weapons against the U.S. and S. Korea to “pay the most horrible price in history.”
- Russian forces are reported to start pulling back from strategic targets as the Ukrainian resistance stands its ground, but this may just be the Russians pulling back to hunker down for the Winter. This leaves the beleaguered Ukraninans to suffer through the bitter cold with low-to-no resources – giving Moscow soft targets for a Spring offensive.
- The crucial economic recovery for Ukrainian goods is still a ways away. The balance of our global economy depends on their exports of grain, oil, and other goods – along with Russia’s energy resources. The smothering of Putin’s Ukraine ambitions will start benefiting Markets everywhere.
- The Oct Jobs and Payroll Report once again defies the Fed’s breakneck rate of Interest Rate hikes, economists’ expectations, and common sense. Yet, with all the reported corporate layoffs, those same corporations are hiring at record speed. What gives? Are these most excellent Job Numbers for the past several months being embellished to influence the 2022 midterm elections? – a bit like the COVID death counts of 2020? If these Jobs Reports are accurate, then the anticipated recession could put millions of these new hires out of work, creating a new Unemployment Benefit Federal Bailout. (Instead of Biden’s “Disinformation” initiatives looking under every conservative stone, maybe they should be looking in the closet of their own administration.)
- The U.K. unveils sweeping $55B financial plan to hike taxes and cut social spending. This move will inflict hardship on millions of Brits as they deal with their debilitating inflation. Newly enthroned Financial Minister Jeremy Hunt confirms that the U.K. is in a recession.
- Heavy COVID restrictions return to China’s busiest economic city. Many residents in Beijing’s apartment system are forbidden to leave for up to 7 days as the COVID virus returns.
- Driving home the recession, many mega corporations are announcing mega layoffs (a contradiction to last month’s Jobs Report). Twitter will nix 50% of their 7,000 employees, Meta to cut 13% (roughly 11,000) of their workforce, Redfin will say goodbye to 13% of their staff, Zillow boots 5%, Peloton sends pink slips to 12%, Carvana waves bye-bye to 2,500, Apple laying off their recruiters, Coinebase, Netflix, Microsoft, Google, and lots more. The Federal Reserve is looking for a downturn in our economy – and this will give it to them.
- The Nov. 2 meeting of the Federal Reserve raised interest rates by another 0.75%, which continues to pile-drive the markets. This makes the sixth rate hike this year and the fourth time at the jumbo rate of 0.75% (March 0.25%, May 0.50%, June 0.75%, July 0.75%, Sept 0.75%, Nov 0.75%). Now at 3.75%, one might think that it would have a negative effect on job creation – but noooo. The last time the Feds raised rates to 3.75% was in the run-up to the Financial Crisis Sept 2005. From there, it blew up to a high of 5.25% before it hit 3.75% again until the downward slope 2½ years later.
- As November winds down, new Fed-Speak hints that the discount rate needs to go up even more than planned – targeting 7% (topping the max of the Financial Crisis of 2005). But also insinuated that the December Feds meeting may hike the rate by only 0.5% and not 0.75%.
- October’s CPI and PPI indexes both rose less than analysts expected. This news bows well for the Fed’s effort to reverse out-of-control inflation. This improvement sparked comments that the Feds may back off a little from the mega rate hikes.
- October reported a drop in the Consumer Price Index (7.7%, down from 8.2% last month). Technically, this was a lower-than-expected increase of 0.4% from last month. Add that to the slight rise in unemployment, and we had the Misery Index dropping ½% last month. This is the eco-response that the Feds are looking for. Maybe, this may be the first sign of easing Interest Rate hikes. But Fed Chairman Powell stated that unemployment needs to hit 6.5% to break the back of inflation.
The Mid-Term Elections are over, and a divided Federal Government will likely be less aggressive; there appears to be a beginning to the end of the Russia/Ukraine war; mass layoffs may be a turning point for high inflation; there appears to be a de-escalation for a cold-war with China – all good signs. But the effects of an ongoing recession are still unclear. Although I feel more positive this week than in the last few months, not enough time has gone by to declare a DEFCON 3
EPI votes an Optimistic DEFCON 2
This is a revamped section inspired by the “Kenny Rogers” strategy.
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 in which direction the market will move but rather if the current trajectory is sustainable.
If the VIX is below 20% (better yet, below 15%), then there is not much speculation about the future of the current market’s trajectory.
Put Options are frequently used as protection against existing investments falling. When the ratio rises, this indicates that the Marketeers believe a market decline is imminent.
If the S&P Put/Call Ratio is below 0.75, then there is a reasonable belief that the markets will rise.
The 4-week trajectory of the VIX Regression Channel took a decisive turn toward lower volatility.
- VIX spent most of last week below 25% and ended at 23%
- The current VIX is now below the 9-Day and the 120-Day SMA
- The 9-Day SMA fell below the 50-Day SMA
- The VIX’s Thrashing has narrowed over the past 30 days as it continues to move lower.
The Put/Call Ratio for the S&P 500 index was indecisive through election day
- The S&P 500’s Put/Call Ratio wildly oscillated above 1.0 and below the 0.75 line
- The P/C Ratio ended last week at 0.71
- The 9-Day SMA is above the 0.75 line (0.9), suggesting continued market pessimism.
While the VIX has been steadily declining over the last month, the Put/Call ratio thrashing has exploded. I’m interpreting this as a general change in the Marketeer’s risk expectations (from safe large-caps to more risky small-caps) now that the elections are over and the House (which holds the county’s pursestrings) has flipped Republican. This perspective will be validated if the ratio settles near 0.7 and the VIX continues to 20% over the next couple of weeks.
I am feeling better about what’s coming. So this week, I’ll go out on a limb and vote cautious DEFCON 3.
Market Sustainability votes a cautious DEFCON 3
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)
November’s finals show a pretty good hit from October’s, falling over 5%.
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 another 0.4% in Oct (less than expected). One year increase was 7.7%, down from 8.2% last month 1.
- Unemployment Rate: Oct rate = 3.7%, up from 3.5% in Sept.
- Misery Index = 11.4% (7.7% + 3.7%), down from 11.9% last month.
- (Note: Ideally, the Misery Index should be well below 10% for a growing economy.)
1 A year ago (OCT 2021), inflation was already sky-high at 6.2%. So being at 7.7% now means that we are actually up by 13.9% over the past two years (Biden’s Administration).
The Misery Index continues to be high as nearly half of all consumers believe our economy is moving in the wrong direction.
CSI votes a dismal DEFCON 2
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) = 3,964 – up 4.9% from 3,780 last month.
Russell 2000 (RUT) = 1,850 – up 6.3% from 1,740 last month.
- Both indexes turned decisively bullish last month
- Short-term trajectories wild swings
- Short-term bullish with the 9-Day SMA above the 50-Day
- Long-term remains bearish, with the 50-Day SMA below the 200-Day
The 4-month Trend Channel continues bearish but is starting a bullish trend now that the elections are over.
The RUT 2-month Trend Channel turning bullish notes that the Marketeers are putting their money back into higher-risk small caps stocks.
The 50-Day SMA for both indexes has leveled. But the 200-Day SMAs are still feeling the effect of pre-election indecision – bearish. Since there was a significant market event that is now past us, it seems the collective anxiety of the Marketeers is starting to wane. I’ll go with a cautious DEFCON 3
Market Index votes a cautious DEFCON 3
My sentiment for this coming week:
Of the four indicators:
- Ecopolitical Influencers softening – optimistic DEFCON 2
- Market Sustainability suggests a possible bounce – cautious DEFCON 3
- Investors’ Sentiment shows a consumer base not excited about our economic future – dismal DEFCON 2
- The market indexes are starting bullish – cautious DEFCON 3
All my technical indicators are showing signs of a Markets bounce.
Trading Readiness Level for this week
(Optimistic) DEFCON 2
This Week’s Guidance
The general trends of the technical indicators are improving, as well as the eco-political events. This may be a sign that the markets may be on the verge of a long-term bounce.
- Markets closed for Thanksgiving and will close early at 1:00 the day after
- Consider only Vertical Bull Put Credit Spreads
- Evaluate each Spread Entry Rules
- Do not open and Vertical Spread that will expire after 12/31/22 (accounting reasons)
Vertical Bear Call Credit Spread (DEFCON 1, 2): Entry Rule 3: Prob-OTM >= 90% 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 >= 85% 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 3, 4, 5):
- Entry Rule 3:
- If IV% < 15% & P/C Ratio < 0.75: Prob-OTM <= 80.0%
- If IV% 15% – 20% & P/C Ratio < 0.1: Prob-OTM = 85%
- IF IV% > 25% & P/C Ratio > 1.0: Prob-OTM = 90%
- Entry Rule 4: Put Short Strike <= 1 Standard Deviation
- (New) Entry Rule 12a: 9-Day SMA above 50-Day SMA
- Entry Rule 13: Strike-Width >= 20 (per leg)
- Early close following this schedule:
- Current AROR > opening AROR
- Allow NO leg to expire ITM and be assigned!
Profit and Loss Statements
(As of 11/25/2022)
Note: I’m no longer posting a “Cash Balance Sheet” or the “Cash flow Chart.” In reality – it has no value. Transferring out $525 each month as my “paycheck” is a bit dopey and counterintuitive. The best measure of my performance is to simply compare my Trading Account to an equivalent investment in SPY.
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|
(As of Jan 4, 2021)
(58.9523 shares @ $474.96)
(Premiums, Int., Div.)
(Early Close & Fees)
(Fractional Shares Sold)
(Open Spreads’ Fair Market Value )
(59.5895 shares * $394.95 CV)
Schedule for this Week
Goals for this week: (11/21/2022 – 11/25/2022) (Week #47)
- Document lessons learned or new thoughts in Commentary Section
- Open one or two Vertical Options Spreads
- Update Trading Log as trades occurs
- 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: Dec 30, 2022 (6-8 weeks)
Note: 8 weeks out put the expiration date into 2023. I want all Spreads closed before the end of 2022.
- Bull Credit Spreads: Dec 30, 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.)
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.
- 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 Month’s Trade Activity
(As of 11/25/2022)
Volatility was too high, and the ETSs were too intense to feel comfortable if the markets could sustain any one direction for the length of time. I should have come to this position back in March.
Spread Count Summary:
|Vertical Bull Put Credit Spreads||30||1||0|
|Vertical Bear Call Credit Spreads||15||0||0|
Current Dollars at Risk:
|Vertical Bull Put Credit Spread||$1,927.||$1,927.||$0.|
|Vertical Bear Call Credit Spread||$0.||$0.||$0.|
|Total Dollar Risk||$1,927.||$1,927.||$0.|
|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||$12,139|
|Set-Aside Dollars for Existing Spreads||-$2,000|
|Cash Available for New Spreads||$10,139|
(Options Buying Power)
Vertical Spreads Opened This Month
(10/31/2022 – 11/25/2022)
QQQ:240p/220p/X1 – Open 11/18/2022 – Expires 12/30/22 – Max Gain = $67.00 – Open Price = 285.56
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 91.0%, Headroom= -15.4%, Max Loss= $1,926, AROR=32.9%
Check (✔) rule that applies:
|Unfriendly Spread||Risky Spread ✔||Friendly Spread|
|DEFCON||1 or 2 ✔||3 or 4||4 or 5|
|Underlying’s Put/Call Ratio||> 1||< 1.0 ✔||< 0.75|
|Underlying’s IV%||> 50%||< 50% ✔||< 30% ✔|
|VIX||>25%||< 25% ✔||< 18%|
|9-Day SMA||below 50-Day SMA||above 50-Day SMA ✔|
|50-Day SMA||below 200-Day SMA ✔||above 200-Day SMA|
|60-Day Trend Channel||bearish||bullish ✔|
|Strike Width||20+||10 – 20 ✔||5 – 10|
|Short Strike Prob OTM||> 90%||> 90% ✔||75% – 85%|
|# Spreads per Week||1||1 ✔||2|
- This is my first Vertical Spread since the end of September and the first time the new rules suggest that it’s ok to enter
- This week’s DEFCON is 2, but an optimistic 2
- The expiration date is only 42 days out. I want all Vertical Spreads closed by EOY
Vertical Spreads Currently Cooking
(As of 11/25/2022)
With all the market turmoil, I held back from entering any new spreads this past month.
Vertical Spreads Closed This Month
(As of 11/25/2022)
All opened Vertical Spreads were closed in Oct. So, no Spreads were closed this month.
Below is just a saved snippet for when I do close.
QQQ:306c/326c/X1 – Open 09/27/2022 – Expires 10/21/22 – Max Gain = $102.00 – Open Price = 277.97
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 89.7%, Headroom= 10.1%, Max Loss= $1,920, AROR=80.9%
At Close: Prob. OTM=94.9%, Headroom= 12.3%
Income to open: $1.02 premium collected * 100 shares * 1 contracts = $102.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed worthlessly)
Net Profit = $102.00 to open – $0.00 to close – $1.00 fees = $101.00
AROR = ($101.00 / 24 days in play) * 365 / $1,898 = 80.9%
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.
My Options Trading activities include cover calls, cash-secure puts, Vertical Spreads, and other options strategies. Cover calls and cash puts assume that I already have a sizable portfolio and accumulated cash to generate a meaningful income. But short-term Vertical Spreads do not require a substantial cash investment to make some fun money. – This blog’s sole focus is short-term Vertical Spreads.
This blog is my Options Trading Journal. I will record my weekly Option Contracts buys and sells in hopes of gaining experience.
Experience is the ability to recognize that
I’m about to make the same mistake again.
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 is 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.”