I’m trying to stick with my mantra of avoiding stupidity in trading this year and at the same time want to grab opportunities when they present themselves.  The opportunity came up a couple of weeks ago and I sold enough to bring in a lot of premiums.  I’ve eased up some since then to make sure my current puts finish with a profit.  Before long I’ll be back at it though and in each 3-5% dip I’ll add more exposure when I see the turn happen.  If the summer makes it through without a 10% correction, money managers will have to do their annual chase for performance through the fall and stocks should rally again.  That’s if Spain doesn’t blow up like Greece did last year and if we don’t have any major natural or man made disasters that wreak havoc on consumer spending or manufacturing.

I ended April with a balance of $109,687.56 after finishing March with a balance of $108,988.28.   That gave me a gain of $699.28 on paper for April and a realized gain for the month of $796.66.  I received no dividends in April.  Quicken reported that I have $109,676.32, fairly close to what I actually have.  The best part about my monthly gain is that stocks actually lost value as a whole so I gained back a little ground on my year to date returns.  I pulled ahead of the Dow, but I’m still trailing the S&P 500 for now.

In recent month end summaries I’ve run the numbers on what it would take me to reach a 20% return in 2012.  I picked that number basically because it’s a round number that looks nice and is better than the averages.  I might get to 20% in 2012, but I actually need close to 18% or $1,500 per month.  That $1,500 will help cover my expenses after my w-2 job is gone after April.  The rest of our expenses are covered by my Advisor business and my wife’s income.  With every client I add, my dependency for investment gains is reduced since business income, rather than investment income, covers expenses.

As my account value grows the percentage required drops each month.  $1,500 is 1.37% of my balance as of April 30th.  At the start of 2012, $1,500 was 1.5% of my account.  Steady growth makes the goal that much easier each month.  I brought in $1,469.73 in net premiums in April, but took a $700 loss on an underlying stock so it knocked me back.  One of my new goals is to try to reduce such stock losses and focus on bringing in more premiums, even if I need to take on some margin risk.  Because of the great start to the year, I only need to average $1,289.06 for the next eight months to reach my original 20% goal.

If all of my naked puts were assigned and my covered calls expired worthless I’d be 105.32% invested in this account.  This is my asset allocation in my IB account as of the end of April.

These are my returns according to Quicken through 4/30/12:

I ended March with a balance of $108,988.28 after finishing February with a balance of $108,103.65.   That gave me a gain of $884.63 on paper for March and a realized gain for the month of $254.04.  That gain is not so bad considering I took a realized loss on my DSX shares of $1,200.04.  I received only $1.12 dividends in March.  Quicken reported that I have $108,965.70, close to what I actually have.

For the past couple of months I’ve run the numbers on what it would take me to reach a 20% return in 2012.  With such a fantastic first quarter in the books, the 20% goal seems much more achievable.  I need 10.1% ($11,011.72) more from here or the equivalent of 1.12% ($1,223.52) a month for the next 9 months.  I eased off my riskier trades too early and could’ve had an even better start to the year.  I still don’t have to take big chances and want to be sure to miss the majority of any downward pressure the market gets at some point this year.  It’s nearly impossible each month will post a gain for the entire year, so I need to continue pushing towards my 20% goal with a few months to spare.  If I include three months of break even months (hopefully not big losses), I need to make $1,835.29 or the equivalent of 1.68% per positive month.  I think the biggest change I’ll have to make is allocating more towards equities and less towards cash/safety.  I’ll probably start running above 100% invested if we get any decent correction month.

With the looming end to my salaried job at the end of the summer I think I’m still just being too conservative even though I’ve segregated my funds into two accounts.  This IB account I blog about is for longer term needs (and can accept more risk) and the other account might be used for funding living expenses if I don’t get my Advisor business cranked up enough by the time I need the cash.  I think I can crank out enough cash from investments to make up the gap between our spending and after tax income.  As the months roll on, I’ll shrink that gap with more clients and an increase in assets under management.

This is my asset allocation in my IB account as of the end of March.

These are my returns according to Quicken through 2/29/12:

I’m still not enthused about adding too much more exposure with the VIX this low and premiums not worth a lot, but I hate not to have much upside potential during a bull market when the charts aren’t showing sell signals yet, just resistance possible.  Even after these trades listed below, I’m still only about 61% invested and I had to force myself into these trades.  I only replaced two of the contracts that expired and will leave some limit orders in place to hit if/when we get our next decent dip in the market.

This is how the rest of my positions finished up for the period.

• DIA – One March $127 naked put – Finished out of the money.  While DIA was trading at $132.23 I sold one May $133 naked put for $3.55 and received $354.12 after commissions.  This trade gives me a potential return of 2.74% (which is only 15.6% annualized) and a cushion of 2.09% before I take a loss on any downside movement.  I thought about buying a call instead, but think I’ll have a better opportunity for that next week if I wait.  Originally, I thought about selling an April put, but the premiums were terrible and gave me almost no downside protection and little upside potential.
• SPY – One March $132 naked put - Finished out of the money.  I’ll add a replacement before long.
• UCO – Three March $27 naked puts - Finished out of the money.  Already sold two new naked puts yesterday.
• IWM – One March $77 naked put - Finished out of the money.  While IWM was trading at $83.07 I sold one April $83 naked put for $2.21 and received $219.85 after commissions.  This trade is more aggressive, but small caps move quicker and in bigger swings, so that makes sense.  For the higher volatility, I can make a better return.  As with my DIA put, I can make 2.74% with this option, but since it’s only a month out, the annualized gain could be 27.9%.  That’s the kind of trade I like more than the DIA trade.  My downside break comes after 2.76%.  It’s not a lot, but I don’t have much invested yet so my overall account risk is very limited still.
• IWM – One March $80 naked put - Finished out of the money.  I’ll add a replacement at some point, hopefully soon.
• DSX – Three March $8 covered calls – Finally I’ll be out of my DSX position.  I’m happy with this trade in a way.  Not because I made money (I didn’t), but because I didn’t chase bad money with good money too far.  This only frees up $2,400, but it’s available now and that’s good.
• TBT – March $19 long put – Do you realize how happy I am that I restrained myself and didn’t sell naked calls to go with this order?  I lost 100% on the trade, but that was a small dollar amount.  I’m just happy I stuck with my anti-stupid mantra for this trade and didn’t lose $1-2,000 from naked calls.  I saw these TBT puts trade as high as $0.21/0.22 before they tanked.  That was $0.4-$0.05 below my limit order.  I was close, but came up empty.  I knew it was a gamble when I made the trade and that’s why I kept it small.

A lot of what’s in my account is set to expire at the end of next week, which might be a week and a half late for taking a full profit on some of these.  If I close anything in the next eight trading days it’ll be a March option.  I can handle weathering some ups and downs in my April contracts.  This is what I’m sitting on right now in my account:

I ended February with a balance of $108,103.65 after finishing January with a balance of $105,764.26.   That gave me a gain of $2,339.39 on paper for February and a realized gain for the month of $708.30.  I received no dividends in February.  Quicken reported that I have $108,143.04, close to what I actually have.

Last month I ran the numbers on what it would take me to reach a 20% return this year.  After such a strong January the mountain didn’t look so big and the strong gains in February shrunk that amount even more.  I only need 11% ($11,896.35) more from here or the equivalent of 1.10% ($1,189.64) a month for the next 10 months.  Even more so than at the end of January, I don’t need to take large risks to stay on track each month.  I still think we’ll get at least a few months where prices move lower, so I need to get as far ahead of the game as possible before then.  It might be a better goal to target three months of losses or at least breaking even.  That would leave me with seven months to make another $1,699.48 or the equivalent of 1.57% per positive month.

I like to break figures down to the ridiculous to better illustrate what steps I need to take to reach goals.  I only have to make 15 trades every two months and average $158.62 per trade to reach my goal.  In comparison, I made 17 opening trades (puts and calls) with an average of $255.82 per trade in the first two months of the year.  This doesn’t include any positions I’ve closed early which take this average down very slightly.

If all of my naked puts were assigned and my covered calls expired worthless I’d be 122.07% invested in this account, far above the 80.98% at the prior month’s ending percentage.  As I mentioned above, I don’t mind taking on more risk/exposure when I’m using ETFs.  We’ve all seen index ETFs fall quickly in the past few years, but not to the extent many individual stocks have.  That’s why I don’t mind selling out of the money puts when my account gets past 100% invested.  Also, I expect my bond allocation in TLT to move inversely to my stock positions, so it’s highly unlikely everything would be assigned at the same time.

This is my asset allocation in my IBKR account as of the end of February.

These are my returns according to Quicken through 2/29/12:

At the end of December I had a balance of $124,831.68 in my Interactive Brokers account. On January 3rd I moved $24,831.68 to my TD Ameritrade account and stopped blogging about that account.  I ended January with a balance of $105,764.26.  That gave me a gain of $5,764.26 on paper for January and a realized gain for the month of $5,340.34.  That’s even with a realized loss of $2,000 on my JPM shares and a $1,100.23 realized loss on my UCO shares, both not counting the gains I had from the options that expired in 2011.  I received $50.00 in dividends.  Quicken reported that I have $105,796.28, close to what I actually have.

If all of my naked puts were assigned and my covered calls expired worthless I’d be 80.98% invested in this account, slightly above the 75.20% at the prior month’s ending percentage.  I had so many options expire in January that I haven’t been able to catch up to a fully invested account yet.  I’ve held back some because I thought Monday’s slip in the markets was going to be the beginning of a bigger fall.  Today has proven that wrong for now, although I’m still cautious.  If the bears don’t resurface tomorrow I’ll probably add to my exposure, although it won’t be too aggressive.  As a general guideline for the year I’m going to try to stay between 80-120% invested most of the time.  The shift might come from obvious cycle changes in broad based investor sentiment and from current positions falling farther out of the money.  Other than that I’m going to rely on time value to be my friend and continue to work higher probability trades as often as possible.

This is my asset allocation in my IBKR account as of the end of January.

These are my returns according to Quicken through 1/31/12:

In 2012 I plan to avoid such panic selling by not using ultra-ETFs as often and reducing my mistakes when we do see a sell-off.  I’m going to aim for more market timing trades and will take some profits early on occasion when I see a turn in the markets from where I was planning them to move.  I also don’t plan to sell such long dated ETFs.  The time value just doesn’t melt away fast enough outside of the final two months and any spike in volatility makes it hard (or at least expensive) to exit the positions, especially with such wide spreads.  If I worked them all like I did with UWM and let them last until expiration it wouldn’t matter as much, but I think being more nimble with shorted dated options will give me much better opportunities to profit.  Last year I planned for targeting bigger chunks of premiums with fewer trades.

In 2o12 I plan to revert back to my old winning ways of trading more often. A volatile market should be an advantage to those of us trading more frequently, but it wasn’t for me last year.  I say this even after my more passive AMTD account beat my more active IBKR account.  My IBKR side lost 5.13% and my AMTD account gained 16.31%.  This difference plays into why I’m moving more into that account too.  I’ll be more patient and take fewer risks there while I don’t have to worry about any withdrawals in my IB account for a few years at least, probably a lot longer – hopefully a couple of decades.

This is the breakdown of the numbers for me:

• I ended December with a combined balance of $154,931.43
• $124,831.68 with Interactive Brokers in equities
• $30,099.75 with TD Ameritrade in bonds and index options  (includes $3,000 deposit)

After ending November with a combined balance of $148,046.98, I gained $3,884.45 on paper for December and had a realized loss for the month of $2,221.37 due to finally dumping my 200 shares of MVV at a $3,900.19 loss, not including premiums received.  I received $72.30 in dividends and interest. Quicken reported that I have $124,762.38 with IBKR, close to what I actually have.  My AMTD balance in Quicken was $30,099.75, exactly what AMTD listed.  If all of my naked puts were assigned and my covered calls expired worthless I’d be 75.20% invested in my IBKR account, much lower than the 102.28% at the prior month’s ending percentage.  Part of the difference is that I was setting myself up for more available cash to be removed.

I sent in my request today to withdraw $24,831.68 from my IBKR account and will move it to my AMTD account this week.  As I’ve mentioned a few times, I’ll only be blogging about my IBKR account from now on.  I think it’ll be more interesting to see the more active account in action and not see the deposits in the first part of the year and the monthly withdrawals by the end of the year.  My plan is to start each year with $100k in the IBKR account, but if I go lower I won’t add to it.  This will keep me from throwing more deposits on an account that isn’t producing like I’m attempting.  My longer history is better with my IBKR account, but that’s because it doesn’t include the beating I took in 2008.

This is my asset allocation in my IBKR account as of the end of December.

These are my returns according to Quicken through 12/30/11:

Just as I said last month, the speed at which the markets change directions continues to make selling options the less than ideal tool to use.  I’ve proven that I’m not a good day trader, so I don’t see a major change in my approach coming.  The only change that I’ve made so far that seems to be working is using more inverse ETFs and selling puts on these when I see the market starting to roll over.  This is an art and I’m just getting started on it, so doubt I’ll go full steam with it any time soon, but as long as the market’s move are so violent I will probably have to start taking some profits sooner than expiration to make sure I lock them in before we get a reversal and those profits turn into losses.

This is the breakdown of the numbers for me:

• I ended November with a combined balance of $148,046.98
• $121,879.16 with Interactive Brokers in equities
• $26,167.82 with TD Ameritrade in bonds and index options  (includes $6,000 deposit)

If all of my naked puts were assigned and my covered calls expired worthless I’d be 102.28% invested in my IB account, not much of a change from the 103.96% at the prior month’s ending percentage.  That number is misleading though because almost 17% is allocated to out of the money inverse ETF puts.  I’d like to let these bearish puts expire worthless, but will have to see how the market plays out over the next two weeks leading into December options expiration.

As I alluded to in a post recently, I’m making a change to my account set up and therefore to this blog too.  At the end of December or the very beginning of January I’m going to withdraw all but $100,000 from my IB account and move it to my TD Ameritrade (AMTD) account and will only blog about what I trade in my IB account.  In nine months from now I’ll be without my w-2 income and might need to start making regular withdrawals from my AMTD account by 2013 and would rather keep that separate from my regular/active trading account.  I’ll manage the AMTD account differently with lower risk and fewer trades.  By keeping my goals for each account separated I can focus on staying aggressive with my IB account without worrying about needing this money for years into the future.  For the past few years I’ve traded this account with a hedge of fear influencing my trades too much and I should’ve made this change earlier.  I should have close to $50k in my AMTD account and will make all future deposits to that account.  This will make my IB account cleaner to follow without deposits shading my gains or losses in either direction.  I’m not sure yet, but I might make this an annual rebalancing so that every year I start with $100k in my IB account, assuming I don’t lose money.  It’ll also be interesting to see how my actively managed account does when compared to my more passive AMTD account.

This is my asset allocation in my IB account as of the end of November.

These are my returns according to Quicken through 11/30/11:

The biggest challenge with the markets over the past few months has been the speed at which they change directions.  A nice, normal market would lose or gain 5-10% over months.  Now we can do the same in days.  I was considering selling more covered calls on my few long positions that aren’t covered yet, but after losing 5% in less than three days (though mid-day 11/1/11) I have to wonder if the worst is over or if we’re on the road back to 1,100 again.  I put the chances of a move back down to 1,100 in the near term around 10-15%.  Earnings have been too good for that to be very likely.  However, Europe is such a wild card for our markets that the chances of another nose dive still exist.  If Greece would just pick a policy and stick with it the markets could adjust, take a hit (lower or higher) and move forward from there at a more controlled even pace.

This is the breakdown of the numbers for me:

• I ended October with a combined balance of $141,607.70
• $122,099.89 with Interactive Brokers in equities (no deposit for the month)
• $19,507.81 with TD Ameritrade in bonds and index options

If all of my naked puts were assigned and my covered calls expired worthless I’d be 103.96% invested in my IB account, a big decrease from the 121.53% at the prior month’s ending percentage.  Last month I noted that my account was becoming less actively managed as I remained patient.  It looks like that idea was short lived as I made more trades in October than the average of the months leading up to it this year.  I ended up not sending in a deposit during October since we finally started our kitchen remodel I talked about at the beginning of the year.  I think we’re only about $1,500 over our planned budget, but thought it wise not to send money into the investing accounts until the dust settles, figuratively and literally.  Hopefully I’ll be able to double up in November before I start increasing our cash reserves for my impending lack of a w-2 salary at the end of next summer when my contract ends at AT&T.

This is my asset allocation in my IB account as of the end of October.

These are my returns according to Quicken through 10/31/11: