February was a rocky adventure for sure. It wasn’t nearly as volatile as January was for me, but offered some interesting twists. A sizeable chunk of my holdings returned to cash where I haven’t been too anxious to change that with my bearish stance lately. Consider this, a year ago I had nearly double my account value at risk based on all my options and owned shares. Today I am running at half my account value at risk. In other words, what was 200% invested then is now 50% invested. With such a foggy window to look out through I don’t feel comfortable having much more at play right now. The interesting twists came from some of my covered calls assigning my stocks (forcing me to sell at the strike price). A great one for me was CELG. I was forced to sell at $50 per share. Friday’s close for CELG was $44.73.
My account balance is $56,610.58 according to TD Ameritrade and is $56,885.38 according to Quicken. That’s down from last month’s month end by only $600 not counting the deposit I made mid-month. I’m not saying I like losing $600, but after seeing what the major indices did, I’m not too far from happy to have only lost what is close to a rounding error. I’ll need to recalculate my 2009 goals at some point since I’m starting to make deposits again, but for now I just need to get back to making a profit each month and continue beating the indices like in the good old days of 2007.
Here’s how I compare the major indexes:
- My 12 month Return: -48.44%
- Year to date (YTD): -2.33%
- Annualized return since 4/8/07 (blog’s beginning): -33.71%
- Deposits for month: $5,000.00 on 2/13/09
According to Morningstar, here’s how the major indexes have done over the past 12 months and the year to date (YTD):
- Dow Jones Return: -40.58% 1 year, -18.92% YTD
- NASDAQ Return: -39.34% 1 year, -12.63% YTD
- Russell 2000: -42.38% 1 year, -21.92% YTD
- S&P 500 Return: -43.32% 1 year, -18.18% YTD
- S&P Midcap 400: -42.00% 1 year, -16.23% YTD
The VIX ended the month at 46.35 and the VXN ended at 45.28. Historically that’s still high, but well off of where we were when we hit a temporary bottom in November 2008. I’d like to see a better spike in the VIX/VXN before I consider devoting more of my cash to the market. When I see a good opportunity for a trade I’ll have plenty of ammunition ready to deploy.
It’s been a tough year for sure. Best of luck in the coming month.
Hello, I’m new to your blog but I’m finding a great deal of useful information here. I have to agree, you’ve done very well this year-to-date by only losing 2.33%. You mentioned that much of your assets had returned to cash and your bearish stance makes you hesitant to put that money back into play. I have to ask: are you only interested in short-term investing strategies? I would think that for any long-term stocks that you would want to be in, you would be bullish because almost everything is undervalued right now.
Sean, Most of my trades are short term focused, but with a long term horizon if that makes any sense. When I sell a naked put I plan to make a quick profit, but if it goes against me I typically stay in for a longer term hold. Selling naked puts just gets me in cheaper. Selling covered calls gets me out at a higher exit price.
When I wrote this I wasn’t bullish for the reason that I’d rather wait for a better entry point to make a long term move. Had I gotten out of my long-term bullish stance 15 months ago and paid more attention to shorter term (< 1 year) trends I'd have more money now. At this point I don't mind not selling at the peak and not buying at the absolute bottom. I believe there's plenty to be made in between those extremes.
Alex, thanks for clarifying. When dealing with puts and calls, is there anything you can do to offset the risk of catastrophic losses as a result of a stock crashing (if you’re writing a naked put) or exploding with value (if you’re writing a call)?
Sean, One of the more common hedges is to buy a put or call at a farther out of the money strike as a hedge. Here’s an example of what I did on SSO a couple of weeks ago – http://mytradersjournal.com/stock-options/2009/02/25/changed-sso-position/