End of Month Update – January 2009

January was the month of woulda, coulda, shoulda for me.  I started off the year at $53,000 and made it above $59,000 before the first 10 days could pass.  That speed continued to the downside easily enough before I could wise up enough to sell anything worth selling or buy puts, but at least I sold some covered calls high enough to bring me some premiums that cushioned my fall.  I fell below $47,000 briefly and then flew back up above $56,000 and then finally ended the month with a balance of $52,207.21 according to TD Ameritrade and $52,232.01 according to Quicken.  I had a margin interest charge of $18.52 for the month.  I don’t consider it bad if I think that I wouldn’t have had a dividend of $24 from Monsanto (MON) if I would have sold my shares to get off margin.  Nor would I have had the premiums from the covered calls I sold.

When I sat at my computer each day and watched my account swing an average of well over $1,500 each day only to end the month down ~$800 from last month I realized I had to reconsider holding so many stocks long without covered calls closer to the money.  I finally dumped DRYS for a stock loss of more than $15,000 which sets me up for a tax free trading year in essence while I work off those losses. 

Of the six long stocks I’m still holding only two are not in-the-money (ITM).  That simple difference from how I started January will lessen my daily fluctuations as the down days in stock price will give me paper gains on the options and vice versa.  My other two covered calls aren’t worth rolling to lower strikes yet because with only three weeks remaining until expiration I expect to make more money as the days pass and time value erodes.  Hopefully I’ll have some of my long stocks assigned from my covered calls and I can move back to more cash and possibly move my account to TD Ameritrade’s Izone where I’ll save on commissions.  I’m still planning a move, but not sure when – more on that another day.

I’m behind my 2009 goals so far, but have a good bit of time value left in my short options, so I expect to catch up some during February.  At least I can be happy that I’m down less than the major indexes for the year to date.  I should be able to catch up on the trailing 12 months after a few more months, but it isn’t going to be easy.  Perhaps my 2009 goals should have been related to beating the Dow or S&P, but with that I can’t have targets to shoot for each month and that quantifiable part makes goals better.

Here’s how I compare the major indexes:

• 12 month Return: -47.59%
• Year to date (YTD): -1.88%
• Annualized Since 4/8/07 (blog’s beginning): -35.02%
• Deposits for month: None

According to Morningstar, here’s how the major indexes have done over the past 12 months:

• S&P 500 Return: -38.63% 1 year, -8.43% YTD
• Dow Jones Return:  -34.90% 1 year, -8.65% YTD
• NASDAQ Return: -38.22% 1 year, -6.38% YTD
• Russell 2000: -36.84% 1 year, -11.12% YTD
• S&P Midcap 400:  -7.25% 1 year, -36.97% YTD

The VIX ended the month at 44.84 and the VXN ended at 44.93.  It’s in that area that’s still high historically, but low for the recent past.  Sitting in a range like that means that volatility could tilt either way in the coming months and an options seller has to be careful waiting too long to sell new options and also selling too soon.