Options Trading Journal Entry 3 September 2022
A few days ago my options trading had its formal take-off.
I formally started on the first of September with real money and a budget of around $4.500. To reach my goals, I have started tracking my options trading in an options trading journal to learn from my mistakes and successes.
As of today, I have one open position left (FCX) from what I consider to be my trial period and which I will close next week (with a profit). This means my trial period is now over. As of now, I will start recording all trades.
I am working on a weekly schedule to plan my activities. Since I still have more than a full-time job and since I also need time to relax, I only have limited time to spend on options trading.
This will change in 5 years at which point I want to be an expert with a guaranteed monthly income from options trading and other investments.
Based on certain criteria I will write about in a future post, I have selected thirteen stocks or ETFs to focus on when trading options.
- C
- EWZ
- FXI
- GDX
- IWM
- LYFT
- MRO
- NIO
- PLUG
- RIOT
- SLV
- SNAP
- UBER
On Saturdays, I revisit the list and select up to five options I want to focus on for the next week.
I follow the stocks (and other underlyings) in TradingView (technical analysis), BarChart (technical and fundamental), WallstreetZen (fundamental), Google Alerts (news), and many other sites.
Then I update my journal, look back at the last week’s trading, and prepare strategies and positions for the new week.
Saturday is indeed my busiest day, and in this phase, I also need time on Sundays to finalize stuff.
Tuesday and Thursday are my trading days.
And of course, on the other days, when I have time, I keep track of my positions in Tastyworks and any news related to my open positions.
Table of Contents
- Options Trading Journal Entry 3 September 2022
- Market Sentiment 3 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 3 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 3 September 2022
I start with a review of the current market sentiment.
I was out of town on a trip to The Netherlands so could only capture the most important news. Which by the way in the Netherlands was very much related to farmers protesting against the government’s climate change policies.
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.
- Recession fears in Europe weighing on investor minds, especially dealing with soaring natural gas prices amid supply disruptions, along with recession fears here in the U.S.
2. VIX Index
The CBOE Volatility Index, or greed-fear index is going up and down around 25%.
- 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 89, which is still fairly close to its 52-week low. 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 sector I look at to understand market sentiment are, due to their huge impact on the global economy, metal & mining and the oil & gas markets.
- Oil prices rise on Friday, up $0.26 or 0.3% to settle at $86.87, but off the earlier highs of $89.66 per barrel. Prices jumped early on expectations that OPEC+ will discuss output cuts at a meeting next week (9/5), though concern over China’s COVID-19 curbs and weakness in the global economy continued to limit gains. The weekly Baker Hughes (BKR) rig count fell -5 from last week to 760, with oil rigs down -9 to 596, gas rigs up 4 to 162 and miscellaneous rigs unchanged at 2.
- Natural gas prices slide -5.1% to nearly three-week-low $8.786/MMBtu and ends 5.2% lower for the week, the largest one-week decline since July 1.
4. Gold, Silver, and Copper (Metals & Mining)
In addition, I look at the financial markets, and related industries.
Gold prices rose $13.30 or 0.8% to settle at $1,722.60 an ounce, getting a boost as dollar strength eased, but still finished the week lower by about -1% (bounced off 6-week lows yesterday).
Silver is lower: Silver Price Forecast – Silver Markets Continue to Plunge
Copper is lower: Copper speculators anticipate a downturn for market and the world
5. Yield Curves
Understanding yield curves also adds to better reading the market sentiment.
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 still close to 0 (0.26). But is going slightly up.
Today’s 10 Year-3 Month Treasury Yield Spread is at 0.15. The long-term average is 1.20. So mfor 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).
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.
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 ended lower after rising as much as 370 points. For the week, broad declines as the S&P 500 fell about -3.2%, the Dow -3%, the Nasdaq -4.2% (led by a -7.3% drop in semiconductors) and the Smallcap Russell 2000 fell -4.9% – the Nasdaq extended its losing streak to 6-days (longest since Summer ‘19 7/29-8/5).
Major Stock Market Sectors
I also follow the major market sectors in Barchart.
This week only Energy in the green. S&P still going down.
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 109,609 up again from last week.
- The U.S. dollar edged back from a 20-year high as traders digested the jobs report. The euro retraced some of the previous day’s losses against the dollar but remained below parity at 0.996. The dollar hit near 25-year highs of 140.801 against the Japanese yen before sliding back. The European Central Bank (ECB) is due to meet next week, with money markets betting on an unprecedented 75 basis points hike. (source: eOption News)
12. Bitcoin
Bitcoin now (15:00 EST) at 19.823 chopping up and (more and more) down around the 20.000 level.
Summary Market Sentiment 3 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
Monday is Labor Day in US so exchanges are closed.
On Monday and Tuesday a lot of numbers will be coming from GB which after 6 years of Brexit to me seems like a total mess.
And this week an important interest rate decision from the EU is expected (Thursday).
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 3 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
None
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 idea I created for each position I set up (BarChart, Lookback etc).
Last week I opened 0 new positions.
Options Strategies Count Summary
Defined Risk
Week 3 -9 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.
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
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: C, FXI, IWM, NIO, SNAP. With LYFT and MRO as ‘reserves’
- C
- EWZ
FXI- GDX
- IWM
- LYFT
MRO(res.)NIOPLUGRIOTSLVSNAPUBER
I need to revisit this as soon as the market opens again on Tuesday.
will also check in my BarChart screeners whether there are results I can use to set up positions. In a future post, I will explain how I set up the screeners.
According to Barchart, a bear put debit spread IWM seems a good idea to look at.
Since I prefer short premiums, I will start with checking out IWM (bear call credit spread and/or short iron condor).
This Week’s Rules
Entry, adjustment, and exit rules per options strategy
Vertical Bull Put Credit Spread
Vertical Bear Call Credit Spread
Vertical Bull Call Debit Spread
Vertical Bear Put Debit Spread
Short Iron Condors
Short Straddles
Other Strategies
Conclusion
This week I want to formally start with my options trading adventure. So let’s see next week what strategies I selected and which! positions I bought or sold
