In my September Summary I started off by saying I was certain of a coming step back for the markets, yet within a few weeks I added greater exposure in my account than I’ve had in many months. (Apparently I wasn’t reading my own analysis.) Soon thereafter we saw the market hit new highs for the year followed quickly by the end (at least for now) of the easy money. My timing couldn’t have been much worse, but at least I sold out of the money naked puts and am not taking as much of a loss as the larger markets have from their tops. I ended October with an account balance of $79,161.03 according to TD Ameritrade and $79,467.96 according to Quicken. That’s a loss of $1,697.75 for the month. Just a couple of weeks ago I was ready to write up my success story for October as my $1,963.50 of new premiums taken in during October was paying off.
I’m around 70% invested. That means I have close to $26,500 that isn’t spoken for if all of my options are assigned at their strikes and I dump my bonds at their current prices. My plan when I started to get more heavily invested was to let this fairly diversified portfolio be my standard and if it sinks I treat it with a more passive stance and don’t chase it with covered calls, much. I’m basing that on my belief that the downside risk isn’t huge right now. We could get another 5-10% to the downside from here, but if I don’t panic I’ll be able to ride it back up when the time comes. In addition, when I believe another short term low is in I still have room to add larger positions to this account. Since I went with three ETFs that attempt to double the daily performance of their respective indexes I am now running at close to a beta of 1.0 in my account when compared to the S&P 500. That was good when the markets were going up, but now – not so much. At some point (hopefully soon) I’ll start to sell new naked puts, but don’t plan to take the option assignments on all, if any, of the ones that fall below their strikes. I want to avoid going on margin in this fickle market, but plan to open myself up to more risk again as the market works some kinks out of its system. We all knew a down month was due. The question yet to be answered is if it’s the start of a double dip or just a healthy correction. I’m leaning towards the latter.
My returns when compared against the major indexes are mixed. I’m ahead of the Dow by a little, below the S&P by about the same amount and trailing the rest. My conservative approach for most of the year appears to be costing me my “win” against most of the indexes, but that was a conscience decision I made based on how tenuous my job was for half of the year. Here’s exactly how I compare to the major indexes.
My 1 year return: 7.31%
Year to date (YTD): 15.82%
Annualized return since 4/8/07 (my blog’s beginning): -15.33%
Deposits for month: None for October
According to Morningstar, here’s how the major indexes have done over the past year and the current year to date (YTD):
Dow Jones Return: +7.71% 1 year, +13.65% YTD
NASDAQ Composite Return: +18.84% 1 year, +29.68% YTD
Russell 2000: +6.46% 1 year, +14.12% YTD
S&P 500 Return: +9.80% 1 year, +17.05% YTD
S&P Midcap 400: +18.18% 1 year, +24.23% YTD
The VIX ended the month at 30.69 and the VXN ended at 29.81. Both are up substantially from their lows a couple of weeks ago. Selling options gets to be worth more at these levels, but one has to wonder if all the risk is priced in yet. With volatility higher recently, options’ prices are higher. Since I plan to take option assignments on what I have short right now that doesn’t bother me. Actually, I see it as a benefit for any new options I plan to sell. The next three weeks leading up to November options expiration will be interesting for sure.