Space, the final frontier. These are the voyages of the Starship… uh… Longshot. Our five-year mission: to boldly explore the uncharted territories of Vertical Spreads, to seek out new income streams (and promptly watch them fizzle), to boldly lose… er, I mean, generate… a modest return on investment. Our continuing mission, for five years, has boldly… well, mostly broken even. But hey, at least the view from the holodeck is nice. Mission… complete-ish.

Captain’s Log, Stardate 54321.8

Commodities Market Sector 36 Beta, Federation Outpost Kaput

Captain’s Log – Final Entry

Five years ago, we set out on a bold mission: to explore the frontier of Vertical Spreads, to seek out new profits and passive income streams, and to boldly… well, to not lose our shirt in the volatile landscapes of the options market.

It’s been a bumpy ride, filled with more delta-neutral calculations than a Romulan starship computer core and enough margin calls to make a Ferengi sweat. We’ve charted countless charts, our replicators churning out endless cups of Romulan ale to fuel our late-night analyses.

We’ve encountered hostile market fluctuations, experienced the devastating effects of rogue earnings reports, and even had a run-in with a particularly nasty Trump Tweet that nearly put us out of commission.

But through it all, the crew persevered. We brainstormed new strategies in the mess hall, debated option Greeks in the holodeck, and beamed down to countless financial news feeds in search of valuable intel.

Today, we stand before you, not with overflowing coffers of latinum, but with a sense of accomplishment (and perhaps a touch of relief). Our mission is complete. We haven’t struck gold, but we haven’t obliterated our life savings either. We’ve charted a course through the options market, learned valuable lessons about risk management, and maybe, just maybe, generated a trickle of passive income.

The final frontier may not be as glamorous as the unexplored reaches of space, but it’s filled with its own challenges and rewards. As we set our sights on new ventures, we can’t help but feel a pang of nostalgia for our vertical spread odyssey.

Beam Me Up, Scotty: My Five-Year Learning Mission is Complete!

Personal Note

While this log entry represents my completed self-training in Options trading, this is just the beginning of my journey toward building a passive income stream through it. Remember, the biggest hurdles are greed and ignorance, especially when they join forces. In the world of probabilities, where Options trading thrives, the Law of Large Numbers reigns supreme. Finally, the success or failure of selling Vertical Spreads is a personal definition, so keep your own goals reasonable and in mind.

Is passive income through Vertical Spreads worth it? Read my previous post A 5-Year Performance Review Selling Vertical Spreads (2019 – 2023).

Live long and prosper!

Captain Damocles (aka Sam Gaines)

End Log

Other Posts from Options Trades By Damocles

Profit and Loss Statements

(As of 05/12/24)

My Performance vs. SPY

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

¹ Calculated separately by averaging each position’s individual ARORs (M2M AROR for all open assets + actual AROR for all closed positions).
² Unrealized Profit or Loss (M2M value + max gains of all open positions).
³ Actual dollars received.
⁴ Net unrealized appreciation on my portfolio.

Important notes about this P&L:

• 2023 Positions: All closed positions reflected here were opened in 2023. This P&L only captures closing transaction costs, not the premiums collected when opening the positions.
• Investment Comparison: The hypothetical SPY investment assumes a constant $20K investment throughout the year. In contrast, my trading account only had a portion of the $20K budget at risk at any given time. Therefore, directly comparing total returns and ROI between these two scenarios isn’t an accurate reflection.
• AROR Consideration: While calculating the Annualized Return on Risk (AROR) for the capital I had at risk would be a more relevant comparison, this metric also has limitations.

Vertical Spreads Opened This Year

(01/01/2024 – 12/31/2024)

To close out this 5-year blog, I wanted to document the completion of all Vertical Spreads opened last year. New positions opened this year will not be recorded here.

Vertical Spreads Currently Cooking

(As of 05/09/2024)

All Vertical Spread positions closed.

Vertical Spreads Closed This Month

(As of 05/09/2024)

This section documents the closing of all the remaining Vertical Bull Put Credit Spreads.

The exit rules that I followed were:

• Current gain > 60% of max gain
• Current AROR > opening AROR
• Current AROR > current SPY AROR

If all three of these are met, I will declare the investment a winner and close the position.

IWM:160p/155p/X4 – Open 09/05/23 – Expires 06/28/24 – Max Gain = $269.00 – Open Price = 353.21
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 77.7%, Headroom= -14.6%, Max Loss= $1,744, AROR= 20.0%
At Close: Prob. OTM= 98.1%, Headroom= -21.5%, AROR= +20.0%

Income at open: $0.64 premium collected * 100 shares * 4 contracts = $256.00
Cost to close: 0.03 premium paid * 100 shares * 4 contracts = $12.00 (closed after 247 days)
Net Profit = $256.00 to open – $12.00 to close – $8.00 fees = $236.00
AROR = ($236.00 / 247 days in play) * 365 / $1,744 = 20.0%

This was closed following all exit rules. This transaction is a winner.

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%
AT Close: Prob. OTM= 98.3%, Headroom= -21.2%, AROR= +19.1%

Income at open: $0.71 premium collected * 100 shares * 4 contracts = $284.00
Cost to close: 0.03 premium paid * 100 shares * 4 contracts = $12.00 (closed after 293 days)
Net Profit = $284.00 to open – $12.00 to close – $8.00 fees = $264.00
AROR = ($264.00 / 293 days in play) * 365 / $1,716 = 19.1%

This was closed following all exit rules. This transaction is a winner.

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%
AT Close: Prob. OTM= 97.5%, Headroom= -21.7%, Max Loss= $1,674, AROR= +23.5%

Income at open: $1.63 premium collected * 100 shares * 2 contracts = $326.00
Cost to close: 0.07 premium paid * 100 shares * 2 contracts = $14.00 (closed after 286 days)
Net Profit = $326.00 to open – $14.00 to close – $4.00 fees = $308.00
AROR = ($308.00 / 286 days in play) * 365 / $1,674 = 23.5%

This was closed following the first two exit rules. I closed when the % of max gain was above 95%

QQQ:325p/320p/X4 – Open 11/17/23 – Expires 09/30/24 – Max Gain = $284.00 – Open Price = 384.46
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 78.6%, Headroom= -15.6%, Max Loss= $1,716, AROR= 18.7%
At Close: Prob. OTM= 92.1%, Headroom= -28.8%, AROR= +42.5%

Income at open: $0.71 premium collected * 100 shares * 4 contracts = $260.00
Cost to close: 0.18 premium paid * 100 shares * 4 contracts = $72.00 (closed after 102 days)
Net Profit = $284.00 to open – $72.00 to close – $8.00 fees = $204.00
AROR = ($204.00 / 102 days in play) * 365 / $1,716 = 42.5%

This was closed following my new Exit Rules (above) of achieving more than 60% of the max gain (act. 71.2%), more than 125% of the opening AROR (act. 227%), and more than the current S&P YTD performance (42.5% > 41.4%).

DIA:315pp/310p/X4 – Open 08/09/23 – Expires 06/28/24 – Max Gain = $260.00 – Open Price = 353.21
(Vertical Bull Put Credit Spread)
At Open: Prob. OTM= 76.6%, Headroom= -10.8%, Max Loss= $1,740, AROR= 16.6%
At Close: Prob. OTM= 90.1%, Headroom= -15.8%, AROR= +23.2%

Income at open: $0.65 premium collected * 100 shares * 4 contracts = $260.00
Cost to close: 0.21 premium paid * 100 shares * 4 contracts = $84.00 (closed after 152 days)
Net Profit = $260.00 to open – $84.00 to close – $8.00 fees = $168.00
AROR = ($168.00 / 152 days in play) * 365 / $1,740 = 23.3%

This was closed following my new Exit Rules (above) of achieving more than 60% of max-gain and over 125% of the opening AROR. As a result, I outperformed the baseline S&P 500 estimate for this year of 16%.

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.”