Entry 29 Oct 22: Rolling Wings

By: nic

Options Trading Journal Entry 29 October 2022

This week I looked at rolling the call wings of my IWM iron condor. It had come under attack due to the surge in stock price since last Friday.

The prices of the underlyings of the other iron condors first went up but then started to stabilize or go down, along bad earnings news.

I was lucky that I closed AMZN two weeks ago. It went 19% down after earnings. It shows that staying away from earnings actually works. Note to me: stick to the DTE 14-21 rule to timely get out of positions.

This week’s volatility decreased from under 30 to around 27, so I need to adjust my portfolio allocation for short premium strategies.

I, therefore, need to look also at adding long debit spreads if I want to maximize my portfolio allocation up to 40% (based on the portfolio rule I imposed on myself). Due to the fact that I doubled the cash in my account last week, I have some work to do to find the right plays.

Overall, I am still looking at a positive week P/L.

Earning season is in full swing. Since I have not added earning plays to my playbook yet, I will avoid opening positions for underlyings with earnings within 30 days of opening. So I am now still mainly looking at ETFs and stocks that have earnings behind them.

I am now actively using all the rules and tools I have to select underlyings, construct trades, and use technical analysis to determine entry points for my options trades.

During the week, I follow the stocks (and other underlyings) in TradingView (technical analysis) and StockInvest.usTradingView (technical analysis), and StockInvest.us during the week. Every day I receive Google Alerts.

And I test all positions in Tastyworks, backtested them in Tastytrading’s Lookback backtesting app, and entered them during the week in the platform.

I am still working on my blog on entry rules in which the options greek delta plays a very important role.

And as a last note: two weeks ago, I received what is considered the bible for options traders: Options as Strategic Investment, 5th ed. by Lawrence G. McMillan.

Options as a Strategic Investment

The book is over 1000 pages, and I am now at page 120, reading about long calls, a strategy I do not intend to use very much but need to understand for the plays I want to use.

Rolling wings
Rolling wings

Table of Contents

Last Week’s Options Trading

This week I opened one extra position (FXI), and I managed/rolled one of my IWM positions.

Status already Active Positions

EWZ Iron Condor 18 Nov 25/27/37/39 Opened October 3 for $52 credit

EWZ has quickly become one of my favorites. It is quite predictable and stays in a 25 low – 40 high range in the past year. For me, it is a high-volatility, and bullish-neutral play, so great for short iron condors and bull put spreads.

The second higher volatility, higher premium EWZ play is in the green, but on Friday, it was only at around 25% profit ($13).

This one expires on 18 November, there is some more need to monitor it since volatility has pushed the expected move closer to the break-evens of the lower short put leg. But no real danger and on Thursday, it went back up to the middle of the two short positions.

It is now slightly below middle of the Bollinger, Keltner, and RSI bands slightly bullish DMI, low ADX and ATR. Deltas short strikes no higher than 16.

EWZ Iron Condor 16 Dec 24/27/38/41 Opened October 20 for $82 credit

The third EWZ position I opened last week with a wider spread and, therefore, higher credit. On Thursday, it was also in the green but only at 11% profit (delta short put at 25) and still needs to go a long way.

EWZ

EWZ seeks to track the investment results of the MSCI Brazil 25/50 Index. The fund generally invests at least 80% of its assets in the securities of its underlying index and depositary receipts representing securities in its underlying index. The index is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer exceeds 25% of the underlying index weight, and all issuers with a weight above 5% do not cumulatively exceed 50% of the underlying index weight. The fund is non-diversified.

QQQ Iron Condor 25 Nov 238/242/298/302 Opened October 20 for $109 credit

QQQ really went up on Tuesday to ten points (288) under the short strike of the call leg (so in a range less than 4% from becoming ITM). On Friday, it was back at 276.79 (around 7%).

On Friday also, QQQ made a big move again to the top of the BB, just under the Keltner upper band, with an RSI around 58 and DI+ going up above the DI+- with an ADX of around 15 (slightly leveling up).

QQQ 29/10/22

QQQ

The investment seeks investment results that generally correspond to the price and yield performance of the index. To maintain the correspondence between the composition and weights of the securities in the trust (the “securities”) and the stocks in the Nasdaq-100 Index ® or NDX, which is heavy with technology stocks (50%) and is also concentrated with the top 15 stocks making up 60% of the ETF, the adviser adjusts the securities from time to time to conform to periodic changes in the identity and/or relative weights of index securities. The composition and weighting of the securities portion of a portfolio deposit are also adjusted to conform to changes in the index.

QQQ has US$149bn in assets and managed by Invesco.

QQQ stock breakdown

IWM Iron Condor 18 Nov 146/149/190/193 Opened on Sep 30 for $76 credit (rolled to 162/165/190/193 on Oct 27 for extra $30 credit)

My second higher volatility, higher premium IWM play went red this week (-$4). The underlying price continued going up all week, but, fortunately, went down again on Thursday and therefore didn’t reach the call legs’ break-even level.

It also offered me the opportunity to roll up the unchallenged put leg with 6 points, so I now have a credit of $130 in total.

If IWM remains in this range I will do the same rolling for the 25 Nov iron condor.

But the underlying price is getting closer to the strike price of 190 (only 6% ‘cushion’ now). The short call had a delta of 32 the last time I looked. Still low, but I have to remain vigilant.

I plot the expected move and change it regularly in TradingView to get a visual on whether legs are challenged.

IWM on Friday, 28/10/2022, before the market opening (it went up afterward)

IWM Iron Condor 25 Nov (W) 150/152/190/192 Opened on Oct 14 for $53 credit

The same for the weekly I opened last week: but red P/L Open now (-$52) due to a challenged call leg, and the delta of the short call is up to 34. So P/L is around -$16. If it goes down to -$26 it will hit my (mental) 50% maximum loss level.

IWM

The investment seeks to track the investment results of the Russell 2000 Index, which measures the performance of the small-capitalization sector of the U.S. equity market. The fund generally invests at least 80% of its assets in the component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the component securities of its underlying index (i.e., depositary receipts representing securities of the underlying index) and may invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents.

PYPL Iron Condor 18 Nov 62.5/65/97.5/100 Opened on Oct 14 for $72 credit

Another volatility play gave me a nice credit, positive backtesting results, and still a position in green at the end of the week (although this is only $5).

However, I oversaw that earnings are coming on 3 November, which is against my entry rules (earnings > 30 days), so I should either get out on time (this week?) if possible with a profit or adjust before that date. I am still far away from >50% profit-taking (one of my exit rules).

And on Friday, 28 October, I really wanted to close PYPL, even at a small loss and placed an order. Unfortunately, nothing happened. I have three days left to fight probably fast-increasing volatility.

PYPL

PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It provides payment solutions under the names of PayPal, Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy. The company’s payments platform allows consumers to send and receive payments in approximately 200 markets and in approximately 100 currencies, withdraw funds to their bank accounts in 56 currencies, and hold balances in their PayPal accounts in 25 currencies. PayPal Holdings, Inc. was founded in 1998 and is headquartered in San Jose, California.

RIOT Short Put 28 Oct (W) 5 Opened on Oct 14 for a $21 credit and rolled up to 5.5 for extra $30 credit)

Once in a while, I place trades in one of my favorite companies: RIOT. I follow blockchain, crypto, and NFTs. RIOT is very much correlated to Bitcoin, so as soon as I see Bitcoin going up or down, I know that RIOT will create.

Lately, RIOT has been quite stable with low IVRs compared to early this year. Whether this says something about Bitcoin I need to check.

Anyway, I already have a stock position in another account, and I don’t also mind having a stock position in my Tastyworks to do some wheel, secured put, and covered call experiments.

RIOT has been going up this week and even reached 7.68. So I rolled my 28 Oct shot put at 5 to 5.5 for a credit of $30 would give me a nice discount of 51 cents on the stock price if and when exercised (so still around $5 per share). If this does not happen, I will still make a nice gain.

RIOT

Riot Blockchain, Inc. and its subsidiaries focus on bitcoin mining operations in North America. It operates through Bitcoin Mining, Data Center Hosting, and Electrical Products and Engineering segments. As of December 31, 2021, it operated approximately 30,907 miners. Riot Blockchain, Inc. was incorporated in 2000 and is headquartered in Castle Rock, Colorado.

Positions Opened Last week

This week I opened one position in FXI.

FXI Short Put Credit Spread 16 Dec 19/21 Opened on Oct 27 for credit of $51

The FXI position I opened has been going completely in the wrong direction and is now heavily in red territory (-$19). So much even that it is coming close to the close at 50% loss target I set myself.

I revisited the chart and am not sure why I chose to put a bull put spread on this stock anymore. The trend is quite clearly bearish.

Technical analysis this week showed, indeed, a possibly oversold high-volatile underlying at the bottom of the Bollinger Bands below the lower Keltner band at an RSI slightly below 30. However, ADX/DMI was giving no indication FXI would go up.

Now there were some positive articles about FXI and recommendations to buy the stock, but this should not have influenced my decision. I may have to manage those positions next week.

Positions Rolled or Closed Last Week

IWM Iron Condor 18 Nov 146/149/190/193 opened on Sep 30 and rolled to 162/165/190/193 on Oct 27.

See above

Options Strategies Count Summary

Defined Risk

Week 22 October – 29 October

YTD

Bull Put Spread (credit)

1

1

Bear Call Spread (credit)

0

1

Bear Put Spread (debit)

0

0

Bull Call Spread (debit)

0

1

Short Iron Condor

1

11

Undefined Risk

Short Option

0

1

Short Straddle

0

0

Short Strangle

0

0

End-of-Week Active Positions Overview

To be set up

Market Sentiment 29 October 2022

Every week I start with a review of the market sentiment.

I mostly use eOption’s Closing Bell emails I receive daily as a source.

US equities enjoyed a nice bounce with both S&P and NASDAQ up more than 2%. 

Last week was a big week for corporate earnings. AAPL earnings stood out last night for not hugely disappointing investors as other tech names have recently, and the stock pulled the market higher with a nice rally today. 

Another big online tech giant bites the dust as AMZN said that it could just break even in Q4 while analysts were expecting more than $5 billion in operating profit and holiday sales of $140B-$148B vs. ests on revenue of $155.09B.

Shares of copper miners fall (FCX) as copper slides after touching its highest in nearly three weeks on Wednesday as a strengthening dollar and new COVID-19 flare ups in China, weigh on industrial metals.

October has thus far outperformed to the upside.

From a data perspective, though, there is reason to be more bullish than bearish, at least in the near term. 

Over the last six instances, the S&P 500 has averaged a gain of 7.3% with a median gain of 5.8% in the period between a 2s/10s yield curve inversion and the start of recession. 

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 Russia-Ukraine war continues to escalate as missile strikes severely damage critical infrastructure in the Kyiv region.
  • U.K. Prime Minister Rishi Sunak reshuffled the cabinet but nothing really changed
  • The European Central Bank (ECB) hiked rates by 75 bps as expected

2. VIX Index

  • The CBOE Volatility Index (^VIX) — Wall Street’s “fear gauge” — now moves around 25 after surpassing 33 in the last weeks (the highest volatility since June of this year).
  • A VIX below 15% is very low volatility. A 15% or below VIX 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 will 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 inadequate for short premium plays, which require high volatility. This is where long calls, puts, and debit spreads may be set up. Only when VIX gets closer to 30%, selling options become viable.
  • At 20% or higher means medium volatility.
  • A VIX of 30% or higher means high volatility. When selling options, you want to sell 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 of around 25, my maximum portfolio capital allocation for shoret premium stratgies 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 are significant in how I size positions and portfolio allocation. Since my focus is on short premium trading, I must balance exposure to substantial losses and reaching 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 86 (not 97 as I opreviously wrote) , 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. The index measures the “volatility of volatility, or the “vol of vol.”

Today, the VVIX went further down at the end of the week to 78 from around 87, which means it is now more and more going under the long-term average of 86 and under the 83-150 range it has been trading at in the past period.

The VVIX/VIX Ratio

See more in this Tastyworks video.

3. Oil and Gas

The following sectors I look at – to understand the market sentiment – are, due to their massive impact on the global economy, metal & mining.

  • Oil prices fell with WTI crude -$1.18 or 1.32% to settle at $87.90 per barrel while Brent dropped -$1.19 or 1.23% to settle at $95.77 per barrel as a bounce in the U.S. dollar weighed on commodity prices, while COVID-19 restrictions in China renewed concerns about energy demand.
  • WTI crude rising 3.4%, its first gain in 3-weeks.
  • Natural gas for December delivery fell 19.1c, or 3.3%, to settle at $5.684 per million British thermal units (MMBtu).

4. Gold, Silver, and Copper (Metals & Mining)

To understand the market sentiment, I look at the following sectors: precious metals and mining due to their massive impact on the global economy.

  • Gold prices slide -$20.80 or 1.25% at $1,644.80 an ounce.

5. Yield Curves

  • Treasury yields advanced across the curve on Friday as data showed that a key gauge of U.S. inflation favored by policy makers rose sharply in September.

Understanding yield curves also adds to better reading the market sentiment.

“A yield curve is a line that plots bonds’ yields (interest rates) having equal credit quality but differing maturity dates. The yield curve’s slope gives an idea of future interest rate changes and economic activity.

There are three main yield curve shapes: regular (upward-sloping curve), inverted (downward-sloping curve), and flat. Upward sloping (standard yield curves) is where longer-term bonds have higher yields than short-term ones. 

Standard curves point to economic expansion, and 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.

  • For some time now, the indicator has been predicting a recession.

ii. The 2-Year/10-Year Yield Curve

  • The 2-year yield rose 10-bps on Friday, but overall declined 6.7 bps this week to 4.422%, down now 2-straight weeks;
  • The 10-year yield rose 7 bps on Friday, but declined 20.3 bps this week to 4.009%, snapping a 12-week winning streak (largest 1-week decline since July 1, 2022).

“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 investors tend to be right about economic weakness on the horizon when the yield curve is inverted. 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.”

Source: SeekingAlpha

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, prices could trend higher, with inflation on the rise.

8. Consumer Sentiment Index

A low CSI index reflects the general (dis-)satisfaction with managing U.S. economic policies. A high satisfaction rating suggests approval of the current policy management and implies market stability. 

Source: Surveys of Consumers (umich.edu).

University of Michigan surveys of consumers sentiment final Oct 59.9 mostly in-line with consensus 59.8.

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 1.0.
  • The put/call ratio went steeply up to 0.955, which indicates slightly fewer people are selling than buying and that the market is neutral/bullish.

Warning: previous research conducted by tastytrade revealed that the Put/call Ratio is not a reliable trading indicator. Readers can check out this installment to review that research in greater detail this installment.

10. DJI, SPX, Russel 2000 Indices, and Main Market Sectors

In general, I look at the leading 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

Major Stock Market Sectors

I also follow the major market sectors in Barchart.

  • Every sector was green.
  • S&P 500 Index up 2.46%
  • On a sector ETF basis, only Consumer Discretionary (XLY) was lower (due to AMZN  Equally weighted, Consumer Discretionary performance was more than +1.5%. 
Major Sectors 22 Oct 2022
Major Sectors 29 Oct 2022

11. USD and Other Currencies

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 pound extended its drop, and fell to lows of $1.1061 before rebounding back above $1.12
  • Wild moves in Japanese yen as dollar hits fresh 32-yr highs 151.49 before the massive reversal, down -2.5% to 146.20 (dollar up 28% YTD still) – the yen snapped its 12-session decline vs. the dollar following the notable reversal.

The DXY didn’t change much compared to last week and was slightly down from last week (113) at 111.875.

12. Bitcoin

Bitcoin still remains in the 19000-20000 zone this week and is at 19179 today.

Summary Market Sentiment 1 October 2022

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 (down from above 30)

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

Earnings and Dividend Calendar

We’re in the middle of the earnings season. In addition, there are some dividend pay-outs upcoming. I tend to stay away from underlying having earnings or dividends within 30 days.

The first dividends are in December for GDX.

Financials

Cash Balance 29 October

I am still recovering the nearly $1.500 loss I made while learning how to options trade (yes, yes, first paper trade and then migrate to the real stuff, I know, but I learn more from being burnt).

And this week didn’t really help. I added to my cash balance but my unrealized gain/loss also went up considerably due to what happened at the end of the week. So my NetLiq went slightly down.

Cash balance 29 Oct 22

And even without including the ‘ramp-up loss’ of $1.500, as from the formal start of my trading (September), I have gained (‘realized’) over $600 now, however extrinsic value of current positions went up to $571 and is still ‘unrealized’ so ‘at risk’.

So actually realized the gain from my ‘formal start’ in September (one month ago) is only around $75.

This is far away from where I should be based on my plan. The root causes are the following:

  • In general, my positions are placed on the safe side with low deltas, so less risk, and low profit
  • I just started using max portfolio allocation (should be 40% based on VIX today, but on average, I only reach half of that); also when I do my financial calculations, I see now that 40% at risk should be minimum to reach goals, or I have to move faster to undefined risk set-ups.
  • Except for a small short put undefined risk play in RIOT, I have been only doing defined risk strategies which are lower risk but also less profitable: I need to start looking at adding short straddles and strangles to my strategies
  • The positions I select have too low premiums compared to the commissions and fees I have to pay and the target profit I have set as a rule (50%): I need to go for higher premiums/max loss.

I added extra funds to my account so that I can trade with higher premiums while still following my rules. Or a combination thereof.

Portfolio allocation

See above: I need to start working on a balance between defined and undefined risk strategies to be added to my playbook.

This Week’s Guidelines

Open Positions Status at Beginning Of the Coming Week

I now have eight positions in FXI (new), QQQ, PYPL, RIOT, EWZ (2x), and IWM (2x).

I am at 19% buying power, well below my target of 40%.

Goals and Schedule for this week

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

I need high IVR underlyings and underlyings trading in ranges with apparent resistance and support areas.

Start looking at how short straddles and strangles work.

Underlyings Selected for Trading This Week

This is my selection for this week. I am still avoiding the earnings as much as possible, looking for high IVRs.

For this week, I will continue applying my underlying selection rules and focus on high volatility (IVR >40) and higher premium underlyings that have no significant events (like earnings < 30 days) coming up.

I added underlyings that just came out of earnings.

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.

I use VIX to determine the allocation percentage for short premium strategies. Since I until now only opened short strategies this is still applicable to my whole portfolio.

However, with VIX going down to 25, I should be looking at using 5% of my total NetLiq for other strategies.

Allocation based on VIX (short premium strategies)

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%

In allocating portfolio capital I need to use Buying Power (NetLiq)

Cash Balance

$10,646.06

Buying Power/Net Liq

$10,075.04

Max Portfolio Capital Allocation Short Premium (Cash Available for Trading)

35%

$3.526,26

Max Portfolio Capital Allocation Other

5%

$503,75

Average Max Position Allocation (BP)

3%

$302,25

Portfolio allocation undefined vs defined risk

All my plays are ‘defined risk.’ I need to add undefined risk positions at a later stage. I will explain why in my blog post on constructing trades.

This Week’s Rules

This week I will start a post with my entry, adjustment, and exit rules per the options strategy. I will describe how I set up a playbook with all the strategies I want to deploy.

Option Positions in Play

Vertical Bull Put Credit Spread

FXI Short Put Credit Spread 16 Dec 19/21 Opened on Oct 27

See above

Vertical Bear Call Credit Spread

None

Vertical Bull Call Debit Spread

None

Vertical Bear Put Debit Spread

None

Short Iron Condors

PYPL Iron Condor 18 Nov 62.5/65/97.5/100 Opened on Oct 14

RSI close to bottom, but not quite there. High IVR, so legs outside expected moves. Low deltas (<20)

IWM Iron Condor 25 Nov (W) 150/152/190/192 Opened on Oct 14

High IVR, so legs outside expected moves. It is a weekly and open interest was very low. Again an experiment.

IWM Iron Condor 18 Nov 162-165-190-193 Opened on 30 September and rolled on 27 October

See last week

EWZ Iron Condor 18 Nov 25/27/37/39 Opened October 3

See last week

EWZ Iron Condor 16 Dec 24/27/38/41 Opened October 21

See above

QQQ Iron Condor 25 Nov (W) 238/242/298/302 Opened October 21

Naked Put

RIOT Short Put 28 Oct (W) 5 Opened on Oct 14

The first undefined trade is a short-term short put for RIOT. It is not the ideal set-up to get a high premium since IVR is low, but once in a while, I will allow myself an experiment.

Short Straddles

None

Other Strategies

None

Conclusion

I’m still going much too slow in opening positions and need to continue optimizing portfolio allocation and position size.

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