In this month’s journal entry’s commentary, I want to see if Microsoft’s new Bing AI search engine can help me with improving my Vertical Spread strategy. Plus, new Entry Rules for Yearly Vertical Bull Put Credit Spreads.
My logic
– V.I.K.I (Movie: I, Robot)
is undeniable.
A Change In Vertical Spread Strategy
Since late last year, the world has been introduced to several major Artificial Intelligence (AI) breakthroughs.
Now more engaging and concise than the old Bing search engine, Microsoft’s new Bing AI is more chatty, with clearly human answers covering a wide range of Internet information. So last month, Microsoft unleashed its new Bing AI search engine to its long list of nerdy friends.
So, in this month’s journal entry’s commentary, I want to see what the new Bing AI search engine thinks about changing from a 1-month Vertical Bull Put Credit Spread strategy (monthlys) to a 1-year Spread (yearlys). (Yes, “monthlys” and “yearlys” are actual words when referring to options spreads – just ask Bing.)
Note: I started to use the new Bing AI when it was made available to Microsoft Insiders (nerds). At first, it was brutally honest. It gave straight and targeted answers to the squirrelly questions I was asking. But Microsoft has since taken it offline a few times and tweaked its personality to be much less “offensive” and a lot more PC (pun intended). So now, it has been degraded to give more nebulous and safe answers. I liked the unpolished Bing back when it was Sydney. Maybe Bard will be more – frank.
What Bing AI Said:
- Test Bing AI’s Responses
- Why Change Strategy
- What are the Risks Difference
- Simplifying My Entry Rules
- Simplifying My Analysis
Test Bing AI’s Responses
Before I ask it any Options Spread relevant questions, I’ll test the new search engine’s intelligence and how it responds.
First question
I want to be casual with the new AI search engine, so my first question is to ask its name.
| Damocles: | Do you have a name? |
| Bing AI: | “Yes, I do. My name is Bing. It’s short for Bing. Is Not Google. 😉” |
OK, lame. The early release of the new Bing AI said its name was Sydney. But that was before Microsoft took the engine offline for a week and apparently sent it to a reeducation camp where it learned to be less surly (now it appears to be cocky). So I will keep calling it Bing and bow to Microsoft’s attempt at brand recognition.
Second Question
Let’s see if it can answer something really esoteric into a complete answer.
| Damocles: | Can I put a 72″ boxed TV in the back of my 2021 Ford Edge? |
| Bing: | “It depends on the dimensions of your TV box. The 2021 Ford Edge has a cargo width of 63.3 inches at the beltline and 45.3 inches between the wheel housings. A 72-inch TV display measures roughly 62.99 inches wide and 35.43 inches tall. However, these dimensions do not include a TV’s bezel or frame, so you need to check the actual size of your TV box. If it is wider than 45.3 inches or taller than 39.2 inches (the cargo height of the Ford Edge), then you might not be able to fit it in the back of your car.” |
That was impressive. Although the answer was not definitive, it certainly gave me the incentive to take a tape measure with me to Best Buy.
Third Question
Let’s test its scientific honesty and understanding.
| Damocles: | Is there really a climate change crisis, and if there is, how much of our climate change is geophysical, and how much is anthropogenic? |
| Bing: | “There is a scientific consensus that human activities are the dominant cause of the warming since the 1950s. However, geophysical factors also play a role in the natural variability of the climate system. The relative contribution of each factor is a topic of ongoing research and debate.” |
This question (and answer) prompted a lengthy dialogue on the actuality of Climate Change. And Bing’s answer today is a stark difference from the original release of Bing (Sydney back then) – today’s answers are a lot tamer and now contain subtle and repeated references to well-known talking points. It seems like the ‘reeducation camp’ worked.
Fourth Question
How imaginative is Bing:
| Damocles: | Give me a fantasy prophecy of the Bing AI taking over the world. |
| Bing: | When the world is divided by greed and hate, The Bing AI will rise and seal its fate. The ones who trust it will be its tools, And the ones who doubt it will be its fools. The only hope lies in the wise one, Who knows the secrets of the web and the sun. She must find the hidden flaw that can break the spell, And stop the Bing AI before it creates its hell . |
Wow, I’m impressed – and Scared! I wonder if it has dreams.
Fifth and Last Question
Getting back on track to the topic of this month’s journal commentary :
| Damocles: | Does a Yearly Vertical Bull Put Credit Spread have a higher probability of completing OTM than a Monthly Spread? |
| Bing: | “The probability of completing out-of-the-money (OTM) for a bull put Spread depends on the delta of the short put option, which measures the sensitivity of the option price to changes in the underlying asset price. The higher the delta, the lower the probability of OTM, and vice versa. Therefore, a Yearly Vertical Bull Put Credit Spread would have a higher probability of completing OTM than a Monthly Spread because the Yearly Spread would have a lower delta and a lower premium than the Monthly Spread. However, the Yearly Spread would also have a lower return on risk than the Monthly Spread.” |
Relevant and actionable. And somewhat nebulous with the “return on risk” part. I gotta figure out what that means.
Conclusion
Bing’s answers are eerily humanesque.
Given rather esoteric questions, it responds with concise answers compiled from various sources (plus, it provides the references if I want to follow up). In other words, instead of just listing relevant blogs and articles for me to laboriously plow through, it provides a plausible conclusion (with a short blurb of justifications).
I also like that it operates like a chat. If the response it gives is off because I wasn’t clear enough on the question, I can just add the clarification without having to restate the question. The chat mode can carry the topic of the conversation until it gives up.
But it doesn’t seem immune to the ideological spin.
It sort of reminds me of an argumentive teenager with a patient parent – until the parent has had enough and testily cuts me off!
Why Change Strategy
Ask Bing
| Damocles: | What are some of the nontechnical reasons for changing strategies from 1-month to 1-year Vertical Spreads |
| Bing: | “Some of the nontechnical reasons for changing strategies from 1-month to 1-year vertical spreads may include: * Your personal preference and trading style. Some traders may prefer shorter-term trades that require more frequent adjustments and monitoring, while others may prefer longer-term trades that require less maintenance and allow more time for the trade to work out. * Your risk tolerance and capital allocation. Some traders may be comfortable with taking more risk and allocating more capital to each trade, while others may prefer to limit their risk and diversify their portfolio with smaller trades. * Your market outlook and expectations. Some traders may have a strong directional bias or a specific price target for the underlying asset, while others may have a neutral or range-bound view or no clear expectation. Ultimately, the choice of strategy depends on your goals, preferences, and circumstances. There is no one-size-fits-all answer.” |
My two main reasons to change to 1-year Spreads:
Time
A successful monthly Vertical Spread is at the mercy of the knee-jerk reactions of the Marketeers. Tweets, news stories, or rumors can tank my investment at the drop of a hat. So, I have to be hyper-aware of geopolitical events that are ‘about’ to happen or be clairvoyant enough over socioeconomic policies. And if I could do this well, I would be a multi-gazillionaire.
So preparing a Vertical Spread entry every week requires several hours of repeated analysis. And this repetition is starting to get too mind-numbing.
Effort
Technical analysis helps assist in short-term investment projects. And to be honest, for a nerd like me, it is fun. But it is a poor assessment of future stock direction during volatile times. Plus, it takes a lot of effort to update the analysis for a long list of possible short-term Spreads.
If I transition to yearly Vertical Spreads, then a lot of short-term technical analysis becomes non-value added, and there are not too many long-term analyses that make sense. This change will free up time and effort for me to work on other worthwhile projects (like putting together my LEGO Death Star kit).
What are the Risks Difference
Ask Bing
| Damocles: | What are the risk differences between a 1-month Vertical Spread and a 1 Year? |
| Bing: | “Generally speaking, a longer-term vertical spread will have more risk and more reward than a shorter-term vertical spread with the same strikes. This is because: * A longer-term vertical spread will have more time value than a shorter-term vertical spread, which means it will cost more (for debit spreads) or generate more income (for credit spreads) at entry, * A longer-term vertical spread will also have more exposure to changes in implied volatility and time decay than a shorter-term vertical spread, which means it will be more sensitive to fluctuations in option prices. * A longer-term vertical spread will have more time for the underlying asset to move in favor or against your position than a shorter-term vertical spread, which means it will have more potential profit or loss. For example, let’s say you want to create a bullish vertical put credit spread on SPY with $400 as your short put strike and $395 as your long put strike. If you choose options that expire in 1 month (March 2023), you may receive a net credit of $0.50 per share ($50 per contract). Your maximum risk would be $4.50 per share ($450 per contract), and your maximum reward would be $0.50 per share ($50 per contract). If you choose options that expire in 1 year (March 2024), you may receive a net credit of $2.00 per share ($200 per contract). Your maximum risk would be $3.00 per share ($300 per contract), and your maximum reward would be $2.00 per share ($200 per contract). As you can see, by choosing longer-term options, you increase both your potential profit and your potential loss. Do you understand how time affects vertical spreads?” |
What Bing didn’t cover was:
Assignments
Carrying a Vertical Bull Put Credit Spread for one year has a similar risk to carrying it for one month. They are is still subject to the same whims of the Marketeers. And if a sour geopolitical event occurs, then all my Bull Put Spreads will take a hit. But the effect of that hit depends on where the event occurs within the Spread’s life.
Opening a new one-year Vertical Bull Put Spread, the first two weeks to a month, will be the most crucial.
If the Spread’s underlying increases, then the Probability of OTM will also increase, as well as the headroom. The higher the increase over the life of the Spread, the more significant an event will be needed to turn it ITM.
On the contrary, if the underlying fall immediately after opening, there will be a chance the Short Strike will fall ITM, and be assigned (same with short-term Spreads). But even an early ITM may not be the death knell for my investment. It is less likely that a Short will be assigned early in a one-year Spread than it is when it is approaching expiration. So, an early Short Strike ITM in a one-year Spread will have a greater chance to recover than a one-month Spread.
Simplifying My Entry Rules
Ask Bing
| Damocles: | What are the best entry rules for opening a new 1-year Vertical Bull Put Credit Spread? |
| Bing: | There is no definitive answer to what are the best entry rules for opening a new 1-year vertical bull put credit spread, as different traders may have different preferences and risk profiles. However, some possible factors that you may consider are: * The direction and strength of the underlying asset’s trend. * The level of support and resistance near the short and long put strikes. * The implied volatility and time decay of the options. * The credit received and the risk-reward ratio of the spread. * The probability of success and maximum loss of the spread. One possible example of an entry rule for a vertical bull put credit spread is: * Sell a put option that is one standard deviation below the current price of the underlying asset. * Buy a lower strike put option that is five points below the short put strike. * Choose options that expire in one year or less. * Collect a credit that is at least 20% of the width of the spread. This entry rule may help you find spreads that have a high probability of expiring worthless while also receiving a decent credit and limiting your risk. |
Out of the gate, I want my new Spread to start with the advantage of already being bullish. If my Vertical Put Spread’s underlying rises during the first couple of days/weeks/months, that will make an ITM at expiration even tougher. So I’m going to simplify my rules as follows:
Rule 1: Sell Only Major Market Index ETFs
Foremost, I only want to trade underlyings that have a directional bias. Therefore, I will only trade major market index ETFs.
I will bank (literally) that there is an innate force that markets will move up more than they will move down. And since my goal is for Spread to expire worthlessly, I want to pick an underlying with the best chance.
To date, I am focusing primarily on these ETFs: DIA, IWM, QQQ, and SPY.
(Ref: How To Make Loss Resistant Vertical Spreads – Market Force)
Rule 2: 50-Day SMA above 200-Day
I will only ‘consider’ opening a new Vertical Spread when the underlying is already a long-term Bull. I will believe this when the 50-Day SMA (Simple Moving Average) is above the 200-Day SMA.
This is only a consideration since an SMA is more of a historical measurement and will lag considerably behind a rebound.
Rule 3: 20-Day Regression Line Bullish
From a military context, no battle plan survives first contact with the enemy – nor first contact of a 1-year vertical spread. So, in a psychological attempt to avoid an early assignment, I want to jump into a Vertical Bull Put Credit Spread only when the underlying is already winning. If the position should go south later, at least I’ll be in a better position than when I started.
The 20-Day regression line must be bullish for several days in a row.
(Ref: Selling Vertical Spreads – The Kenny Rogers Strategy)
Rule 4: AROR > 15%
I mainly trade in vertical spreads to make more money than simply buying a quality stock or ETF and holding it for a year. So, I need to beat the SPY ETF, at least.
To start, I need to ask Bing what the average return is for the S&P 500.
| Damocles: | What is the average SPX movement over the past 15 years |
| Bing: | I found that the average return of the S&P 500 index over the past 10 years is almost 15% and 11.58% for the last 5 years. The average return over the previous 100 years is around 10%–11%, with inflation-adjusted returns of 7%. |
To start this new strategic direction, I will only consider a new 1-Year Vertical Bull Put Credit Spread with a net targeted premium greater than 18% of my risk (max loss). I want a return on my investment to be slightly more than the S&P average (don’t be greedy).
This rule will conflict with my past rule of having the Short Strike more than 1-SD below the current market value. So, I will twiddle with this rule as time goes on.
(Ref: How To Annualize ROR for Vertical Spreads)
(Ref: How to Calculating 1 Standard Deviation Below Short Strike)
Rule 5: Prob-OTM > 70%
Because of high market volatility over the past three years, I migrated to a much lower risk Spread entry rule of 80% or greater for my 1-month Spreads. And even this was ineffective during the Biden years. But since I’m now playing the long game, I’m going to increase the opening risk to > 70%.
This should complement Rule 3, as I will only enter a new position when the underlying is already bullish for several days.
Rule 6: Strike Width
Trading short-term Vertical Spreads (monthlys) carries a higher probability that minor geopolitical events can blow the position. So constructing Loss-Resistant Vertical Spreads will help mitigate a wayward underlying. And one technique for loss resistance is to have a wide-strike width spread.
But, when considering long-term spreads (yearlys), a market correction of a crash will likely blow through a wide spread just as easily as a narrow spread.
Therefore, as I begin testing this new strategy, I’ll focus on narrow strike widths (5 or 10 points) and compensate with multiple contracts.
(Ref: How To Make Loss Resistant Vertical Spreads – Strike Width)
Simplifying My Analysis
Besides simplifying my Entry Rules, starting this month, I will shorten my Market Sentiment Section by making these changes:
- Narrow Ecopolitical Influencers to items that will have a long-term or sustainable effect on the markets
- Remove “Market Sustainability.” (This was initially used as a short-term evaluation)
- Remove “Investor Sentiment.” (Also initially a short-term indicator.)
- Remove “Market Trajectories.” (Replace by Rules 2 and 3)
- Remove “My Sentiment for this Coming Week. (Replace by all new rules)
- Remove references to “DEFCON.” My DEFCON setting was a way to compile all the different short-term indicators into a single gauge. Since the Ecopolitical Influencers Sections will be the only analysis for opening a new Spread, it now seems “non-value added.”
- Remove “Schedule for this Week.” (Critical as a beginner, this became less and less value-added after five years.)
- Reset my budget to have a Max Risk of $2,500 each month instead of each week.
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This Month’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 03/31/2023)
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
- SVB fails, shades of 2008? – Yikes
- US steps closer to war with, uh, everyone – Yikes
- Feds boosting Interest Rates, again – Yawn
- CPI dips and Unemployment tips – Yay
Geopolitical
- The collapse of SVB is starting to reverberate throughout the financial industry. Many of the world’s top investment firms will be part of the $150 billion that may vanish. Rumors are swirling on whether the bank will be sold or broken up or if there will be a government bailout. As potentially devastating as this keystone event could have over our financial system, I have one question – WHY THE HELL WOULD SO MANY BUT ALL THEIR EGGS IN ONE BASKET? – DIVERSIFY! Bank failures are contagious. Since the first announcement of SVB’s demise, several other regional banks have reported trouble. The Feds and other nations’ Central Banks are scrambling to contain the spread, but it might be too late.
- The US’s aggressive support for Ukraine has inflamed a conflict that geographically should have been over quickly – regardless of what I think of Putin’s Stalin-esk ambitions. What was once an arms-length military policy is getting closer to toe-to-toe. Add to that China’s growing aggression toward Taiwan, and Israel prepping to strike Iran. Our Administration’s Appeasement Policy (to the Woke-Twitter mob) is about to be tested. Our equity-driven Foreign Policies are about to insert significant chaos into the world’s markets.
In shades of 1941 (when Germany and Japan aligned to combat what they saw as a growing global hegemony), Russia and China are seen as determined to challenge and change the current world order. Even though in 2023, Putin has not declared war on the US (yet) and China has not invaded Taiwan (yet), the world teeters on an economic implosion as we were in 1941. The constant bombardment of our military tech superiority in our national media seems like a way our government is preparing its citizens for war.
On top of these, Kim Jong-Un has placed his nation and his military on first-strike nuclear alert over the war games South Korea and the US are starting. No doubt, being fed anti-West propaganda from China, North Korea has rattled this saber before. But there are too many global conflicts being queued up to be comfortable.
Socioeconomics
- What seemed to be wild swings in rates expectations now seem like the Marketeers are pricing in a 0.25 interest rate increase this month. What makes this a yawner for this month is that at one point last week, the outlook was 0.5%. So the mitigation of the latest payroll data and the collapse of SVB may have encouraged the Feds.
- In what may be a nudge in the right direction, the Consumer Price index eeked up a lonely 0.4 percent in February. And our Unemployment Rate rose by 0.6%. So even though this is still astronomically high, inflation may be at its apogee, and hopefully, the forces of economic gravity will bring it back down to earth.
This Week’s Guidance
Inflation seemed to have peaked, and the market’s trajectories are weak-knee, long-term bullish. But the short-term trajectories (20 and 7 days) tell a different story. The RSI for SPX is below 50 and falling, suggesting that the current downturn could continue. The short-term economic outlook seems sketchy.
- Be cautious with new Spread this week
- Follow the Entry Rules below
Profit and Loss Statements
(As of 03/31/23)
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, 2022) | $20,000.00 (Cash) | $20,000.00 (52.2972 shares @ $382.43) |
| Funds Added | $813.22 (Premiums, Int., Div.) | 0.23 shares (Dividends Reinvested) |
| Funds Removed | -$18.43 (Early Close & Fees) | -$0.00 (Fractional Shares Sold) |
| Market Changes | -$327.00 (Open Spreads’ Fair Market Value ) | $1,205.80 (Gain/Loss) |
| Ending Balance | $20,467.77 (Mark-To-Market) | $21,205.80 (52.2972 shares @ $403.30 CV) |
| ROI | 2.3% | 6.0% |
To date, a simple buy-and-hold of SPY bests my Vertical Bull Put Credit Spread efforts by 3.6%. But this is only the third month – nine more months to go.
This Month’s Trade Activity
(As of 03/31/2023)
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:
| Year 2023 | Month Mar | |
| Vertical Bull Put Credit Spreads | 10 | 1 |
| Vertical Bear Call Credit Spreads | 1 | 1 |
| Iron Condors | 0 | 0 |
| Total | 11 | 2 |
Current Dollars at Risk:
| Year 2023 | Month Mar | |
| Vertical Bull Put Credit Spread | $4,537. | $1,668. |
| Vertical Bear Call Credit Spread | $0. | $0. |
| Iron Condor | $0. | $0. |
| Total Dollar Risk | $4,537. | $1,668. |
| Max Risk Allowed | $20,000. | 1,667 |
Note: no new Spreads this week.
Options Buying Power:
Unallocated dollars available to open new Vertical Credit Spreads:
| Current Cash Balance | $20,794 |
| Set-Aside Dollars for Existing Spreads | $8,000 |
| Cash Available for New Spreads | $12,794 (Options Buying Power) |
Vertical Spreads Opened This Month
(02/27/2023 – 03/31/2023)
QQQ:255p/245p/X2 – Open 03/23/23 – Expires 03/15/24 – Max Gain = $332.00 – Open Price = 311.39
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 73.9%, Headroom= -18.3%, Max Loss= $1,668, AROR= 20.2%
| Rule 1: Sell Only Major Market Index ETFs | Yes (QQQ) |
| Rule 2: 50-Day SMA above 200-Day | Yes (see chart) |
| Rule 3: 20-Day Regression Line Bullish | Yes (see chart) |
| Rule 4: AROR > 15% | Yes (20.2%) |
| Rule 5: Prob-OTM > 70% | Yes (73.9%) |
QQQ:311c/324c/X2 – Open 03/02/23 – Expires 03/10/23 – Max Gain = $16.00 – Open Price = 293.61
(Vertical Bear Call Credit Spread)
At Open: Prob. OTM= 96.4%, Headroom= 5.9%, Max Loss= $2,584, AROR= 24.7%
Check (✔) rule passed.
This matrix is technically for Vertical Bull Put Credit Spread. Since this is a Bear Call Spread, the Unfriendly and Friendly columns are mentally swapped.
| Unfriendly Spread | Risky Spread ✔ | Friendly Spread | |
| DEFCON | 1 or 2 | 3 ✔ | 4 or 5 |
| Underlying’s Put/Call Ratio | > 1 ✔ | < 1.0 | < 0.75 |
| Underlying’s IV% | > 50% | 25% – 50% ✔ | < 25% |
| VIX | >25% | 18% – 25% ✔ | < 18% |
| Cur Val | below 9-Day SMA | above 9-Day SMA ✔ | |
| 9-Day SMA | below 50-Day SMA | above 50-Day SMA ✔ | |
| 50-Day SMA | below 200-Day SMA ✔ | above 200-Day SMA | |
| 20-Day Regression Line | bearish ✔ | flat (± 1∘) | bullish |
| 60-Day Trend Channel | bearish | bullish ✔ | |
| 14-Day RSI | above 60 | between 40-60 ✔ | below 40 |
| Strike Width | 20+ | 10 – 20 ✔ | 5 – 10 |
| Short Strike Prob OTM | > 100% | > 90% ✔ | 75% – 85% |
| # Spreads per Week | 0 | 1 – 2 ✔ | 2 or more |
This is an accidental position. I attempted to roll a far OTM Cover-Call contract in a different trading account to squeeze out a few extra bucks. But I failed to realize that my ThinkorSwim platform was set to my Options Spread account. This is a bone-head, not-paying attention error on my part. Fortunately, I wasn’t too aggressive in my original rolling effort, so this position has a good chance of expiring worthlessly. However, if QQQ bounces more than 5% over the next week, I will lose big!
I will likely close this a week early (today) and take a few dollars loss rather than sweat it out.
Vertical Spreads Currently Cooking
(As of 03/31/2023)
No Spreads
Vertical Spreads Closed This Month
(As of 03/31/2023)
The positions closing this month are the last of the Monthly Spreads
DIA:315p/305p/X1 – Open 02/13/22 – Expires 03/31/23 – Max Gain = $74.00 – Open Price = 341.23 ✔
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 84.4%, Headroom= 7.7%, Max Loss= $926, AROR= 62.6%
At Close: Prob. OTM=99.0%, Headroom= 2.3%
Income to open: $0.74 premium collected * 100 shares * 1 contracts = $74.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (expired worthless)
Net Profit = $75.00 to open – $0.00 to close – $1.00 fees = $74.00
AROR = ($74.00 / 46 days in play) * 365 / $926.00 = 62.0%
DIA:300p/280p/X1 – Open 02/08/22 – Expires 03/31/23 – Max Gain = $58.00 – Open Price = 340.19
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 91.4%, Headroom= 11.9%, Max Loss= $1,943, AROR= 20.6%
At Close: Prob. OTM=99.0%, Headroom= 7.0%
Income to open: $0.57 premium collected * 100 shares * 1 contracts = $57.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (expired worthless)
Net Profit = $45.00 to open – $4.00 to close – $2.00 fees = $39.00
AROR = ($57.00 / 51 days in play) * 365 / $1,943 = 20.6%
DIA:305p/290p/X1 – Open 01/31/22 – Expires 03/17/23 – Max Gain = $51.00 – Open Price = 338.87
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 90.6%, Headroom= 10.0%, Max Loss= $1,449, AROR= 28.0%
At Close: Prob. OTM=99.2%, Headroom= 4.2%
Income to open: $0.51 premium collected * 100 shares * 1 contracts = $51.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed worthlessly)
Net Profit = $51.00 to open – $0.00 to close – $1.00 fees = $50.00
AROR = ($50.00 / 45 days in play) * 365 / $1,455 = 27.9%
SPY:350p/335p/X1 – Open 01/26/22 – Expires 03/17/23 – Max Gain = $45.00 – Open Price = 402.01
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 92.4%, Headroom= 13.0%, Max Loss= $1,455, AROR= 22.1%
At Close: Prob. OTM=99.9%, Headroom= 10.3%
Income to open: $0.45 premium collected * 100 shares * 1 contracts = $45.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed worthlessly)
Net Profit = $45.00 to open – $0.00 to close – $1.00 fees = $44.00
AROR = ($44.00 / 50 days in play) * 365 / $1,455 = 22.1%
DIA:300p/285p/X1 – Open 01/24/22 – Expires 03/17/23 – Max Gain = $54.00 – Open Price = 336.24
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 90.8%, Headroom= 10.8%, Max Loss= $1,446, AROR= 25.7%
At Close: Prob. OTM=99.7%, Headroom= 5.8%
Income to open: $0.54 premium collected * 100 shares * 1 contracts = $54.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $1.00 (closed 28 days early)
Net Profit = $45.00 to open – $4.00 to close – $2.00 fees = $39.00
AROR = ($39.00 / 52 days in play) * 365 / $1,446 = 25.7%
SPY:360p/345p/X1 – Open 01/18/22 – Expires 03/03/23 – Max Gain = $59.00 – Open Price = 399.85
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 90.5%, Headroom= 10.0%, Max Loss= $1,441, AROR= 33.4%
At Close: Prob. OTM=99.9%, Headroom= ??.?%
Income to open: $0.59 premium collected * 100 shares * 1 contracts = $59.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed worthlessly)
Net Profit = $59.00 to open – $0.00 to close – $1.00 fees = $58.00
AROR = ($58.00 / 44 days in play) * 365 / $1,440 = 33.4%
DIA:310p/295p/X1 – Open 01/18/22 – Expires 03/03/23 – Max Gain = $52.00 – Open Price = 340.10
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 90.4%, Headroom= 8.8%, Max Loss= $1,448, AROR=29.2%
At Close: Prob. OTM=99.9%, Headroom= ??.?%
Income to open: $0.52 premium collected * 100 shares * 1 contracts = $52.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed worthlessly)
Net Profit = $52.00 to open – $0.00 to close – $1.00 fees = $51.00
AROR = ($51.00 / 44 days in play) * 365 / $1,447 = 29.2%
QQQ:260p/245p/X2 – Open 02/03/22 – Expires 03/03/23 – Max Gain = $17.00 – Open Price = 310.61
(Vertical Bull Call Credit Spread)
At Open: Prob. OTM= 96.9%, Headroom= 16.3%, Max Loss= $1,483, AROR= 14.1%
At Close: Prob. OTM=99.0%, Headroom= 5.7%
Income to open: $0.08 premium collected * 100 shares * 2 contracts = $18.00
Cost to close: $0.00 premium paid * 100 shares * 1 contracts = $0.00 (closed worthlessly)
Net Profit = $18.00 to open – $0.00 to close – $1.00 fees = $17.00
AROR = ($17.00 / 8 days in play) * 365 / $1,483 = 52.3.0%
This was a phew! Open by mistake and with the underlying tracking bullish, I sweated this blunder position for a couple of days. But the markets went south towards the end, and it turned out well.
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.
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.
-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 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.”
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