Today, the S&P 500 is only 4% away from our pre-COVID high of 4,776 – the start of all this market management lunacy. Any new Vertical Bull Put Credit Spread I open in the next couple of months will hopefully trigger my exit rules long before the one-year expiration dates. The Economic Outlook for my 2023 Vertical Spreads looks pretty good.

Outlook for Our Economy

The S&P 500 gained a linear average of 10.8% each year for the six years run-up to the COVID-CON. Then, at the start of the year of COVID, the Marketeers fled the markets to the tune of nearly 20% in a short 3 ½ months.

As predicted, the COVID Crash in the first three months of 2020 was followed by a V-shape recovery. Rocketed by trillions in stimulus spending, the S&P 500 nearly doubled in value in about a year and a half (from 2,585 on March 15^th, 2020, to 4,766 on December 15^th, 2021).

Then, after a metaphorical face-palm, we learned that spending trillions buying everything in sight while demanding our workers stay home, up-ended our system of supply/demand, and suddenly inflation exploded. So we spend 2022 trying to lasso that calf. The S&P fell from its high of 4,766 to 3,570 over the first ten months of the year (a -25% loss).

It wasn’t until the end of 2022 when we started to get word that we were getting a handle on the inflation beast.

The Marketeers began slowly moving their money from under their mattresses back into the markets. But like a skittish cat, any loud noise from anywhere in the Market-Verse will flinch the Marketeers back to their mattresses.

Today, the S&P 500 is only 4% away from our pre-COVID high of 4,776 – the start of all this market management lunacy. The phenomenal rise and fall we have seen over the past nearly four years will eventually level. And sooner or later, normality will be inflicted on the markets.

Any new Vertical Bull Put Credit Spread I open in the next couple of months will hopefully trigger my exit rules long before the one-year expiration dates. But volatility is falling, and high premiums are no longer the norm. I have confidence that my Vertical Spread strategy will be successful for the remainder of this year – unless…

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Other Posts from Options Trades By Damocles

This Month’s Market Sentiment

This Market Sentiment Section is typically completed the first week of the month. By the time this journal is published, it will be mostly old news.

(As of May 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.

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Yikes – Yawns – Yays

• Jobs increase Yay (wait! No!) – Yikes

• Trump indicted, yet again – Yawn

• Inflation at 0.2% over last year – Yay?
• Russia is fizzling – Yay!

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Geopolitical

• Has Russia’s failed invasion of Ukraine demoralized and bankrupted its fatherland to the point of a 1917-esque collapse? Prigozhin’s march to Moscow on the M4 highway seemed to remove that question mark. But a Russian political collapse will not result in a national breakup or takeover by neighboring nemeses. The International community will not support foreign colonization that would unbalance the region. But overthrowing the governing level of quasi-democratic monarchs would lead to the first genuinely democratic election of senior leaders and unleash a torrent of economic development projects that can lead to regional prosperity.

Socioeconomics 

• An unexpected rise in job creation a the start of this month elicited a knee-jerk reaction from the Marketeers. It’s usually great news that the private sector added 497,000 new jobs. But during high times of punishing inflation, this great news was met with heightened fears of more interest rate hikes. I need to wait a few days to let the Marketeers price in the assumed 0.25% July hike in the markets before I open a new position.

• June’s inflation eeked a less-than-expected 0.2% increase over May’s. This is good news from the piling-on perspective. Meaning, as my grocery bills have gone through the roof, maybe it won’t climb much higher over the next month. While we celebrate the slowing of the pace of our crippling inflation of the 3.0% rise since June of last year, last year was 9.1% higher than the year before, which was 5.4% higher than the previous year. Since Biden was elected, I have been paying 17.5% more to live. “This is the Climate Change economy. Get used to it!” – Joe Biden.

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This Month’s Guidance

For the long-term (one year out): Over the balance of this year, I don’t expect any kind of 2022-like inflation/interest rates crisis. There is still a lot of growth potential as the Marketeers continue to transition back into the small-caps markets.

A June ’24 expiration is too early to have an election effect.

For the short-term (June ’23): The phenomenal market run-up over the last 6 weeks is proving too good to continue, as Marketeers have started to take their well-earned profits. I’ll expect a well-earned pullback this month, so I may want to wait until late to enter new Spreads.

As long as I follow my Entry Rules and Exit Rules, I’m confident that any new Vertical Bull Put Credit Spread I open this month should be successful.

Profit and Loss Statements

(As of 07/28/23)

My Performance vs. SPY

Hypothetically, instead of depositing $20,000 in my Options Trading Account, could I have done better if I bought $20,000 of the ETF/SPY instead?

	Options Trading Account	SPY (Fictional)
Initial Investment (As of Jan 4, 2023)	$20,000.00 (Cash)	$20,000.00 (58.9523 shares @ $474.96)
Dollars At Risk	$8,492	$20,000.00
Funds Added	$3,327.56 (Premiums, Int., Div.)	0.424 shares (Dividends Reinvested)
Funds Removed	-$613.07 (Early Close & Fees)	-$0.00 (Fractional Shares Sold)
Market Changes	-$1,137.00 (Open Spreads’ Fair Market Value )	$4,048.24 (Gain/Loss)
Ending Balance	$21,577.49 (Mark-To-Market)	$24,048.24 (52.7212 shares * $453.90 CV)
ROI	7.9%	20.2%
ROR	39.3%1	20.2%
Dollars Earned	$1,577.492	$4,048.242

¹ Calculated separately by averaging each position’s individual ROR.
² Earned vs. Unearned dollars.

This Month’s Trade Activity

(As of 07/28/2023)

Spread Count Summary:

	Year 2023	Month July
Vertical Bull Put Credit Spreads	18	2
Vertical Bear Call Credit Spreads	1	0
Iron Condors	0	0
Total	19	2

Current Dollars at Risk:

	Year 2023	Month July
Vertical Bull Put Credit Spread	$8,492.	$3,380.
Vertical Bear Call Credit Spread	$0.	$0.
Iron Condor	$0.	$0.
Total Dollar Risk	$8,492.	$3,380.
Max Risk Allowed	$20,000.	4,888

Note: no new Spreads this week.

Options Buying Power:

Unallocated dollars available to open new Vertical Credit Spreads:

Current Cash Balance	$22,714.49
Set-Aside Dollars for Existing Spreads	$10,000
Cash Available for New Spreads	$12,714.49 (Options Buying Power)

Vertical Spreads Opened This Month

(07/03/2023 – 07/28/2023)

The first three of these new Vertical Bull But Credit Spreads are considered replacements for the three Spreads I this month.

SPY:405p/400p/X4 – Open 07/19/23 – Expires 06/28/24 – Max Gain = $284.00 – Open Price = 452.13
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 74.5%, Headroom= -10.5%, Max Loss= $1,716, AROR= 17.2%
Currently: Prob. OTM= 74.6%, Headroom= -10.5%, AROR= 17.2%

Rule 1: Sell Only Major Market Index ETFs	Yes (SPY)
Rule 2: 50-Day SMA above 200-Day	Yes (see chart)
Rule 3: 20-Day Regression Line Bullish	Yes (see chart)
Rule 4: AROR > 16%	Yes (17.2%)
Rule 5: Prob-OTM > 70%	Yes (74.5%)

(7/17) Long-term: OK (see June’s blog). Short-Term: RSI above 70, P/C is at 1, and IV is low. But a -10.1% short strike puts the line at the beginning of the aggressive (maybe AI hype exaggerated) bull run. The last big drop was 17% (8/6/22 – 10/11/22) but recovered within two months. I expect a pullback shortly, but I don’t see anything that will cause SPY to fall to a correction.

Because the RSI is above 70, I lowered the Strike one noch to be more conservative for an expected pullback.

QQQ:325p/320p/X4 – Open 07/12/23 – Expires 06/28/24 – Max Gain = $336.00 – Open Price = 371.09
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 73.9%, Headroom= -12.4%, Max Loss= $1,664, AROR= 20.7%
Currently: Prob. OTM= 77.4%, Headroom= -14.8%, AROR= 146.2%

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 > 16%	Yes (20.7%)
Rule 5: Prob-OTM > 70%	Yes (73.9%)

(7/12) Long-term: OK (see July’s blog). In the bottom half of the 60-Day trend channel but above the nadir line. RSI is flat. I’ll expect a 2-3% bounce over the next week – 10 days.

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Vertical Spreads Currently Cooking

(As of 07/28/2023)

QQQ:305p/300p/X4 – Open 06/27/23 – Expires 06/21/24 – Max Gain = $296.00 – Open Price = 363.60
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 76.7%, Headroom= -16.1%, Max Loss= $1,704, AROR= 17.4%
Currently: Prob. OTM= 78.5%, Headroom= -17.3%, Max Loss= $1,664, AROR= 85.7%

IWM:165p/155p/X2 – Open 06/16/23 – Expires 05/17/24 – Max Gain = $326.00 – Open Price = 186.96
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 71.8%, Headroom= -11.7%, Max Loss= $1,674, AROR= 21.0%
Currently: Prob. OTM= 73.5%, Headroom= -12.0%, Max Loss= $1,674, AROR= 43.6%

QQQ:300p/290p/X2 – Open 06/08/23 – Expires 03/28/24 – Max Gain = $292.00 – Open Price = 355.66
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 77.4%, Headroom= -15.7%, Max Loss= $1,734, AROR= 19.0%
Currently: Prob. OTM= 82.6%, Headroom= -18.8%, Max Loss= $1,734, AROR= 69.2%

Note:

Vertical Spreads Closed This Month

(As of 07/28/2023)

SPY:365p/355p/X2 – Open 05/19/23 – Expires 03/28/24 – Max Gain = $284.00 – Open Price = 419.11
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 74.7%, Headroom= -12.9%, Max Loss= $1,716, AROR= 19.1%
Currently: Prob. OTM= 86.6%, Headroom= -18.6%, Max Loss= $1,716, AROR= 60.7%

Income to open: $1.42 premium collected * 100 shares * 2 contracts = $284.00
Cost to close: $0.65 premium paid * 100 shares * 2 contracts = $130.00 (closed 259 days early)
Net Profit = $284.00 to open – $130.00 to close – $4.00 fees = $150.00
AROR = ($150.00 / 55 days in play) * 365 / $1,716 = 58.0%

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 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.”