As crazy as August was, I came out relatively OK. I lost money on paper, but not much compared to what it looked like it would be two Monday’s ago. I’m crushing the major indexes for the year-to-date and for the past 12 months too. My hedges have a good profit, but most of my naked puts are deep in the money now and don’t have much time value remaining to evaporate. On the other hand, while I don’t have much time value to give me extra gains through the next two months, I have a lot of intrinsic value that could shine for me if we get the rebound I expect before the end of the year.
I ended August with a Net Liquidation Value (NLV) of $107,371.83 and a Net Asset Value (NAV) of $107,472.95 according to Interactive Brokers (IB) after finishing July with an NLV of $110,959.24. That gave me a loss of $3,587.41 (~3.23%) on paper for August and a realized gain for the month of $1,031.50 on four closing trades. The realized gain came from my TLT trade, while the other three closing trades were option assignments and the profit was rolled into the price of the stock share purchases and will be realized when I sell the actual shares.
I didn’t receive or have to pay any in dividends in August since I’m not long or short any stocks or ETFs. Quicken reported that I have $107,472.88. The Quicken number is $0.07 less than IB’s number. I can see the difference in my cash. I was able to reconcile some of the discrepancies from download errors. I went back as far as June with a few positions that I closed and was able to delete the $0.03 adjustment from June since I found the error that caused it. I don’t know where the remaining error is coming from, but don’t have time to research it any further today. It doesn’t appear to be Quicken’s fault in every case. Sometimes the trades seem to settle differently than the original print, by a penny or two. Sometimes it is Quicken’s fault, as when the investment amount and the cash received don’t match. I figured this out last year and only have to click the field and hit enter to fix it.
I only have three option contracts set to expire in September. The two naked puts, SPY $215 and MDY $280 look like they are on a path to being assigned. I can stomach buying the shares and won’t even rush into covered calls since I don’t think we’re headed for a recession and therefore any sell-off shouldn’t last too long. My other option is on TLT in the form of 10 $124 naked calls. By yesterday’s close, TLT was nearly $3 below my strike, but it shaved some of that cushion today, but not as much as one might expect on a day stocks are down more than 2.5%. I still don’t have a limit order in for more TLT naked calls, but I’m planning to sell more this week or next.
If all of my naked puts were assigned, I would be 87.52% invested in this account (91.99% without the spreads). I am invested 1.33 percentage points lower than I was at the end of July. I’ve thought about selling my hedges on one of these massively down days, but always talk myself out of it. If I do sell my hedges (which are sitting on a profit right now), I probably wouldn’t take too long to close the lower short leg of the combination too.
This is my asset allocation in my IB account as of the end of August:
- Large-cap ETF: 18.16% (I accounted for my SPY March 2016 put spread within this)
- Mid-Cap ETFs: 26.08%
- Small-Cap ETF: 34.79% (I accounted for my IWM January 2016 put spread within this)
- International: 7.45%
- Individual Stocks & Other Sector ETFs: 9.49%
- Bonds: 0.0% (not including my TLT call spread)
- Short ETFs: 0.0%
These are my returns according to Quicken through August 31, 2015:
- YTD Return: +7.59%
- 1 Year Return: +12.31%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +8.76%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, August 31, 2015:
- Dow Jones Return: YTD change -5.68%, 1 year change -1.00%
- S&P 500 Return: YTD change -2.88%, 1 year change +0.48%
- NASDAQ Composite Return: YTD change +0.85%, 1 year change +4.28%
- Russell 2000: YTD change -2.97%, 1 year change +0.03%
- S&P Midcap 400: YTD change -1.48%, 1 year change +0.01%
The VIX ended the month at 28.43 and the VXN ended at 29.92. While both of these are more than double their closing levels from July, they are down substantially from their peaks of 40.74 and 42.95 respectfully. The added volatility makes selling options much more lucrative, but with the added risk of assignment in both directions (puts and calls). I’m close to fully invested, but eventually I’ll start selling farther out of the money puts on stocks and ETFs that I wouldn’t mind owning at these cheaper levels.
The CBOE SKEW Index finished August at 129.36, up a little more than 5 points from the end of July. The 130 range is higher than it has been in a while, outside of the past week, but it’s a long way from 146 that it hit last September. If the SKEW Index stays above 130 for more than two days, it might be worth taking some more risk off the table.