Options Trading Journal Entry 10 September 2022
So last week I wrote a post that 3 September would be my formal take-off.; but this flight stayed on the ground and decided to do nothing. So what happened?
I selected five stocks/ETFs to focus on for last week’s trading (mainly based on high IVR rank, no earnings/dividends):
- C
- EWZ
- GDX
- IWM
- LYFT
I indeed followed the stocks (and other underlyings) in TradingView (technical analysis) and StockInvest.us during the week. Every day I received Google Alerts which I diligently studied.
In the end, only the IWM debit spread opportunity I had found in BarChart seemed to work. But this one also disappeared the next time I looked. And in the middle of the week, only EWZ seemed to fit my entry rules (I will write about them in a future post). But also here I could not find any options strategy fitting my entry rules anymore, and I had to abandon it.
And of course, on the other days, when I had time, and kept track of my positions in Tastyworks and any news related to my open positions.
Table of Contents
- Options Trading Journal Entry 10 September 2022
- Market Sentiment 10 September 2022
- 1. Geopolitical Events and Economic Trends
- 2. VIX Index
- 3. Oil and Gas
- 4. Gold, Silver, and Copper (Metals & Mining)
- 5. Yield Curves
- 6. Producer Price Index
- 7. Consumer Price Index (CPI)
- 8. Consumer Sentiment Index
- 9. Put/Call Ratio
- 10. DJI, SPX, Russel 2000 Indices, and Main Market Sectors
- 11. USD
- 12. Bitcoin
- Summary Market Sentiment 10 September 2022 (unchanged from last week)
- This Week’s Economic Calendar
- Earnings and Dividend Calendar
- Financials
- Last Week’s Options Trading
- This Week’s Guidelines
- Conclusion
Market Sentiment 10 September 2022
Every week I start with a review of the current market sentiment.
U.S. stocks rallied on Friday, and major indexes snapped a three-week losing streak as investors continue to factor in the expectation for higher interest rates just around the corner (source: SeekingAlpha Wallstreet Breakfast).
On Friday the first news came in that Ukraine had breached Russian lines and was on its way to liberate many towns in the Donetsk region.
Later this week, key inflation reports due with June CPI and PPI reports likely market catalysts.
1. Geopolitical Events and Economic Trends
During the week I capture the most important news. Every weekend before the new trading week I review the current markets, the general geopolitical events, and economic trends determining the sentiment in the world of options trading.
- The death of Queen Elizabeth II
- Ukraine is on a winning spree pushing back Russia into a humiliating retreat
- British Foreign Secretary Liz Truss was named leader of the governing Conservative Party on Monday, making her the next U.K. prime minister after the scandal-plagued resignation of Boris Johnson. She will have to deal with a serious cost of living crisis and skyrocketing inflation that’s running at a 40-year high of over 10% and an economy that is falling apart due to Brexit
- Recession fears in Europe continue to weigh on investor minds, however, the EU seems to be dealing with the soaring natural gas and consumer prices
- The central bank in the EU delivered a huge75 basis point increase on Thursday, the largest increase in 24 years.
- Recession fears in the U.S continue to worry investors
- China again tightening coronavirus restrictions this weekend amid rising cases
- The Nikkei Index rose 295 points or 1.11% to 26,912, the Shanghai Index fell over 40 points or 1.27% to 3,313, and the Hang Seng Index plunged -600 points or 2.77% to settle at 21,124 (source: eOption News)
- In Europe, the German DAX is down -100 points to 12,915, while the FTSE 100 is down roughly -0.5% at 7,162. (source: eOption News)
2. VIX Index
The CBOE Volatility Index, or greed-fear index last week went up and down between around 23 and 28. and is today around 24%.
- A VIX below 15% is very low volatility. A VIX of 15% or below 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 lower, it’ll tell us that the broader market is likely to head higher.
- Up to 19% VIX means the market is in ‘lull’ mode. 19% is seen as the ‘steady state’ VIX. This arena is not adequate for short premium plays which require high volatility. This is where long calls and puts and debit spreads may be set up. Only when VIX gets closer to 30% selling options become viable.
- A VIX at 30% or higher means higher volatility. When selling options, you want to be selling out of stocks when the VIX is near 30. This is where credit spreads, short strangles, straddles, short iron condors, etc. can be played.
- Above a VIX of 40%, this is still the case, but given the extreme volatility, you should be very careful.
VIX for position sizing
With a VIX 0f around 25, my maximum portfolio capital allocation is 35% of net liq.
VIX
< 15
15-19
20-29
30-40
>40
Volatility
Lowest volatility, all comfortable
Market in ‘lull’ mode
Volatility high
Volatility very high
Volatility and fear levels highest
Maximum portfolio capital allocation
25%
30%
35%
40%
50%
Volatility and the VIX play a very important role in how I size positions and portfolio allocation. Since my focus is on short premium trading, I must strike a balance between exposure to large losses and being able to reach sufficient occurrences.
In 2022 the VVIX Index (VIX Volatility Index) has also traded within a fairly reasonable range (roughly between 83 and 150). The long-term average is 97 and the VVIX is mean-reverting.
The VVIX is nicknamed the “VIX of VIX” because it is calculated using the implied volatility of ATM and OTM options in the VIX itself, using the same calculation method as VIX uses. The index measures the “volatility of volatility, or the “vol of vol.”
Today, the VVIX is trading at about 85, which is still fairly close to its 52-week low (around 79). But as you can see from the chart, the VVIX is also quite choppy.
What does it mean for markets and investors if VVIX is at its lowest point? Investors leaving the market (or using VIX options to hedge)? A shift of exposure from equities to bonds, commodities, and cash?
The VVIX/VIX Ratio
See more in this Tastyworks video.
3. Oil and Gas
The next sectors I look at – to understand market sentiment – are, due to their huge impact on the global economy, metal & mining.
- Oil prices slip as China’s covid resurgence this weekend overshadows tight market.
4. Gold, Silver, and Copper (Metals & Mining)
The next sectors I look at – to understand market sentiment – are, due to their huge impact on the global economy, precious metals.
Gold (GLD), silver (SLV) and copper (COPX) ETFs all went up again in the second part of last week.
5. Yield Curves
Understanding yield curves also adds to better reading the market sentiment.
This week treasury yields drop along with gold prices.
A yield curve is a line that plots the yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.
There are three main shapes of yield curve shapes: normal (upward sloping curve), inverted (downward sloping curve), and flat. Upward sloping (also known as normal yield curves) is where longer-term bonds have higher yields than short-term ones.
Normal curves point to economic expansion, downward sloping (inverted) curves point to economic recession.
Yield curve rates are published on the Treasury’s website each trading day.
Source: Investopedia
i. The 10-Year Treasury Constant Maturity minus 3-Month Treasury Constant Maturity Yield Curve
The yield curve (T10Y3M) compares the 10-year with the 3-month U.S. Treasury bond yield. It gives insight into bank profitability, which is correlated with economic activity. Historically, the yield curve has been a reliable predictor of economic recessions.
An inverted yield curve has been a good indicator of an economic slowdown ahead. A 10-year-3-month treasury spread approaching 0 signifies a “flattening” yield curve. Furthermore, a negative 10-year-3-month spread has historically been viewed as a precursor or predictor of a recessionary period.
The 10-year-3-month treasury spread is at 0.25 so still close to 0 .
So for some time now the indicator has been predicting a recession.
ii. The 2-Year/10-Year Yield Curve
Similar to above but using 10 year and 2 year.
From SeekingAlpha:
“An inverted yield curve can be an important economic indicator and a likely precursor to a recession.
When the curve inverts, the longer-dated bond (I am using the 10-year) will offer a lower annual yield than a short-dated bond (I am using the 2-year). This means that investors have bid up the prices on longer-dated bonds to the point where they yield less than short-dated bonds.
An inverted yield curve results from investor concerns about the economy and the stock market. History shows that when the yield curve is inverted, investors tend to be right about economic weakness on the horizon. Since WWII, every recession has been preceded by a yield curve inversion.
Recessions don’t start immediately after the yield curve inverts, however. The inversion tends to precede the recession by 6 to 18 months.
The 2-year/10-year yield curve spread inverted on April 1, 2022, for the first time since 2019. It is still inverted today.
6. Producer Price Index
The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services. Source: Bureau of Labor Statistics (BLS).
- Still going down which is a sign that inflation may be slowing
7. Consumer Price Index (CPI)
The measure that is most often used to measure inflation in terms of consumers is the consumer price index (CPI). Tens of thousands of items, in several categories, are tracked. The basket of products or services is considered each month, and economists and statisticians look for trends. If the CPI rises, it is an indication that prices could be trending higher, with inflation on the rise.
- However, consumer prices are still rising (although the steep slope is weakening slightly)
- Consumer prices rose 8.5% in July, less than expected as inflation pressures ease a bit
8. Consumer Sentiment Index
A low CSI index reflects the general (dis-)satisfaction with managing of U.S. economic policies. A high satisfaction rating suggests approval of the current policy management and implies market stability. Surveys of Consumers (umich.edu).
9. Put/Call Ratio
- A Put/call Ratio of below .5 could mean the market is very bullish. Maybe too bullish. It could be an excellent time to sell stocks high.
- Between 1.0 and 2.0 the Put/call Ratio indicates a bearish market.
- A Put/call Ratio above 2.0 could mean it is very bearish. It could be an excellent time to consider buying low.
- Moving sideways if the Put/call Ratio oscillates between 0.5 and 2.0.
Warning: previous research conducted by tastytrade revealed that the Put/call Ratio is not a reliable trading indicator. To review that research in greater detail, readers can check out this installment
10. DJI, SPX, Russel 2000 Indices, and Main Market Sectors
In general, I look at the main indices DJIA, SPX, and Russell 2000 (IWM) and the level of volatility or ‘market thrashing’ (excessive volatility with significant rising then near proportionate falling in markets’ values within a trading period) : above 1% in any or all of them might indicate indecision in the market.
DJIA, SPX, IWM
- The Dow advanced +0.8%, S&P 500 up +1.9%, and Nasdaq up +4.6% as stocks rose for a second week.
- All 11 sectors in the S&P 500 closed in the green for the week, with the consumer discretionary sector standing out as the top gainer. The Dow finished the holiday-shortened week up 2.8%, while the S&P 500 Index rose 3.6% and the Nasdaq shot up 4.2%.
· The Russell 2000 Index was little changed down -0.24 points, or 0.01% to 1,769.36
Major Stock Market Sectors
I also follow the major market sectors in Barchart.
- This week all sector in the green again led by Communication Services (from last place last week!) and Energy in second place.
- Utilities and health care in the last two places (but both going up).
- S&P 500 Index going up 1.53%.
11. USD
The DXY, the symbol for the US dollar index, tracks the price of the US dollar against a basket of six foreign currencies that have a significant trading relationship with the US and are also hard floating currencies. The index will rise if the dollar strengthens against these currencies and will fall if the dollar weakens against these currencies.
The DXY now stands at 108.973, slightly down from last week’s 109,609.
- The U.S. dollar/Japanese yen touches 137, the highest since 1998. In Asian markets,. (source: eOption News)
12. Bitcoin
Bitcoin made a move back up to 21.600 with high volume on 8 September 2022.
Summary Market Sentiment 10 September 2022 (unchanged from last week)
Bull market
Bullish
Neutral/bearish
Bearish
Bear market/crash
1. Geopolitical events and economic trends
Positive trends, stable supply chains
Minor market issues, minor supply chain issues
National events, market issues, bad economic data, mini-corrections
Negative indicators, international events, serious market issues, broader market correction (-10%)
The total collapse of the global market, deep recession
2. VIX (VIX)
<15
Lowest volatility, all comfortable
15-19
Market in ‘lull’ mode
20-29
Volatility high
30-39
Volatility very high
>40
Volatility and fear levels highest
3. Oil & Gas (XOP)
Oil & gas
Minor market issues, minor supply chain issues
National events, market issues
International supply chain interruptions, high oil & gas prices
International conflicts involving US, Russia or China, and other main producing countries
4. Gold, Silver & Copper (GLD & SLV & Copper)
Gold, silver, and Copper stable
Minor market issues, minor supply chain issues
National events, market issues
International supply chain interruptions, high oil & gas prices
International conflicts involving US, Russia or China, and other main producing countries
5. US Yield Curve (T10Y3M and US10Y vs US02Y)
Considerably steep curve
Steep curve
Average but still positive curve
Flattening, inverting, and approaching zero
Inverted curve and negative
6. Producer Price Index (PPI)
Lowest price level
Price level higher than normal
Price levels rising fast
The price level is very high
Highest price level
7. Consumer Price Index (CPI)
Lowest price level
Price level higher than normal
Price levels rising fast
The price level is very high
Highest price level
8. Consumer Sentiment Index (CSI)
High consumer confidence
Consumer confidence is less high
Consumer confidence going down
Low consumer confidence
No consumer confidence
9. S&P 500 Put/call ratio (PCR)
Well below 0.5 (very bullish)
Close to 0.5 (bullish)
Between 0.5 and 1.0 (neutral)
Between 1.0 and 2.0 (bearish)
Above 2.0 (severely bearish)
10. Dow Jones (DJI)
S&P 500 (SPX)
Russel 2000 (RUT)
Major Market Sectors (XLE, XLF, etc)
Strong bull market
No real changes in an upward trend
Bullish market
Minor changes in an upward trend
Neutral bullish/bearish market
Increased (negative) changes and “thrashing”
Bearish market
Going down, many negative changes
Bear market
A deep recession or the market is collapsing, or already did so
11. US Dollar Currency Index (DXY)
Very weak dollar versus other currencies
Weak dollar
Neither weak/nor strong dollar
Strong dollar
Very strong dollar
12. Bitcoin (BTCUSD)
Bitcoin rising
Bitcoin rising slightly slower
Bitcoin “thrashing” at the same level
Crypto crashes, market corrections
Bitcoin collapses
No restrictions on trading (except for VIX rules)
Closer watch and reduce trades
More caution needed and reduce trades further
Extreme caution and reduce trades even further
Look to close any open positions and no new trades
This Week’s Economic Calendar
On Monday and Tuesday a lot of GB numbers coming in. On Tuesday also the US CPI and on Wednesday the PPI. The EU PPI follows on Friday.
The CPI inflation report for August will be one of the most important ones in the week ahead. The report is expected to show that prices rose 8.1% in August which would mean a second straight month of deceleration.
Earnings and Dividend Calendar
Next earnings for my selected underlying are NIO, Citigroup and SNAP.
First dividends are in December for GDX.
Financials
Cash Balance 11 September
| Year 2022 | Month September | Week 5-11 September | |
| Beginning Account Cash Balance | $6,019.87 | $4,527.73 | $4,527.73 |
| Deposits (Div. & Int.) | $0.00 | $0.00 | |
| Withdraws (paycheck1) | $0.00 | $0.00 | |
| Premiums on Open | $0.00 | $0.00 | |
| Premiums on Close | -$1,353.08 | $0.00 | |
| Commissions Paid | -$110.00 | ||
| Fees Paid (total) | -$29.28 | -$0.00 | |
| Dividends/Interest Received | $0.22 | ||
| Ending Account Cash Balance | $4,527.73 | ||
| Total Gain/Loss | -$1,492.14 | ||
| At risk | $0.00 | ||
| ROR | |||
| ROC |
Current Dollars at Risk
Not started
Last Week’s Options Trading
Positions Closed Last Week
None
Positions Opened Last week
I will also explain which sources I used and how I researched the options ideas I created for each position I set up (BarChart, Lookback, etc).
Last week I (again) opened 0 new positions.
Options Strategies Count Summary
Defined Risk
Week 10 -16 September
YTD
Bull Put Spread (credit)
0
0
Bear Call Spread (credit)
0
0
Bear Put Spread (debit)
0
0
Bull Call Spread (debit)
0
0
Short Iron Condor
0
0
Undefined Risk
Short Option
0
0
Short Straddle
0
0
Short Strangle
0
0
End-of-Week Active Positions Overview
This Week’s Guidelines
Open Positions Status at Begin Week
No positions open
Goals and Schedule
At the end of the month of September, I want to have reached maximum portfolio allocation.
Sunday: set up options strategy ideas and perform backtesting; select at least two options strategy ideas.
Tuesday: open a minimum of 2 vertical spreads or iron condors
Thursday: open a minimum of 2 vertical spreads or iron condors
Options Buying Power and Portfolio Allocation This Week
Based on my current buying power and portfolio allocation rules I determine whether I can open new positions to maximize such portfolio allocation.
Allocation based on VIX
VIX
< 15
15-19
20-29
30-40
>40
Volatility
Lowest volatility, all comfortable
Market in ‘lull’ mode
Volatility high
Volatility very high
Volatility and fear levels highest
Maximum portfolio capital allocation
25%
30%
35%
40%
50%
Cash Balance
$9.000
Max Portfolio Capital Allocation (Cash Available for Trading)
35%
$3.150
Portfolio allocation undefined vs defined risk
To be set up
Underlyings Selected for Trading This Week
Based on the criteria for stock selection (liquidity, volatility, technical, etc.), I have selected the following stocks for this week to focus on: EWX, GDX, LYFT, and SNAP. And I will keep an eye on RIOT give the moves in Bitcoin to which RIOT is much correlated.
C(low IVR, I prefer trading short premiums, and earnings on Oct 14: at this stage I avoid earnings events)- EWZ (high IVR)
FXI(low IVR)- GDX (high IVR)
IWM(medium to low IVR, but very low IV%%)- LYFT (high IVR and earnings far enough away in time)
MRO(low IVR)NIO(very low IVR and may be an opportunity for debit spread?)PLUG(low IVR)- RIOT (high IVR)
SLV- SNAP (medium to high IVR)
UBER
I need to revisit this as soon as the market opens again on Tuesday.
And I will also check in my BarChart screeners to see whether there are results I can use to set up positions. In a future post, I will explain how I set up the screeners.
This Week’s Rules
Entry, adjustment, and exit rules per options strategy
Vertical Bull Put Credit Spread
To be filled in
Vertical Bear Call Credit Spread
To be filled in
Vertical Bull Call Debit Spread
To be filled in
Vertical Bear Put Debit Spread
To be filled in
Short Iron Condors
To be filled in
Short Straddles
To be filled in
Other Strategies
To be filled in
Conclusion
If I’m not sure or the indicators are not sufficiently pointing you in the right direction or of I just don’t have enough time to thoroughly analyse options ideas, I prefer doing nothing. And wait for the opportunity rather than risk losing money.
In what I call my trial period I lost money because was careless. I didn’t do much analysis, I didn’t pay attention to economic indicators, had no idea what the VIX was, entered into positions based on the advice of ‘gurus’ on the Internet, didn’t know the companies behind the symbols, and I could go on.
So let’s see next week what strategies I selected and whether or not I bought any positions.
