January turned out to be an interesting month. After six months in a row of gains we finally saw the Dow Jones drop. The S&P 500 fell for the second time in 11 months. It makes me feel a little vindicated for staying so heavily in cash over the past few months after seeing the DJIA fall back to its levels from October. At the same time it never feels good to have my account balance drop in value, but that’s just how investing works. I can stomach more than the couple of percentage points I dropped if it means I’ll have better buying opportunities soon. It’s especially easier to swallow when I see that I lost less than all of the major indices this month. It’s about time being conservative with my investments paid off. Due to my conservative approach in 2009 I’m trailing all of the indices returns for the past 12 months. If January is truly a barometer of how the year should unfold then a goal of making a profit this year might not be shooting too low as a goal. I still think there’s a lot of money to be made by selling options and this down month is really starting to whet my appetite.
I finished 2009 with a balance of $85,007.52 and then sent in a $16,000 deposit a few days later which in essence gave me a starting balance of $101,007.52. I finally broke the magical $100k mark and then fell behind it with my January losses. I didn’t realize it until I started writing this post that my January 2010 deposit equaled the total of my deposits for 2009, but then again I was close to losing my job for months last year and was hoarding cash and then we saved for a new car deposit. I have full intentions of making more regular contributions this year as my current job pays much more than my previous. My Investment Advisor business is starting to pick up. I have four clients who have started the process of moving their accounts under my management and will continue to try to add two per month this year. I plan to let any revenue I take in accumulate without me taking withdrawals so that I have a cushion when my current job contract ends if I’m not fully ramped up with the new business yet.
I finished January with combined balance of $98,663.75 ($87,522.30 with Interactive Brokers and $11,141.45 with TD Ameritrade). That gave me a loss for the month of $2,343.77. After being so patient for so long I finally started to increase my exposure at the wrong time. Luckily I didn’t overextend myself. I still have about 25% of my combined accounts in cash (assuming all of my naked puts are assigned, which might not happen since one isn’t below my strike and I might roll others). This leaves me with some capital to work with when I think we’ve hit a bottom or at least a lower risk entry point. I’m still trying to walk the line of taking on less risk while trying to meet or beat the averages. I could dump everything into index ETFs and ride the year out slightly ahead of the markets, but I think I’ll do better by continuing to sell options and pick my entry and exit points based on research and opinion.
Here’s exactly how my returns compare to the major indexes.
My 1 year return: +22.82%
Year to date (YTD): -2.34%
Annualized return since 4/8/07 (my blog’s beginning): -13.04%
Deposits for month: $16,000.00 on 1/4/10
According to Morningstar, here’s how I compare to the major indices.
Dow Jones Return: 1 year +29.83%, YTD -3.32%
S&P 500 Return: 1 year +33.14%, YTD -3.60%
NASDAQ Composite Return: 1 year +45.44%, YTD -5.37%
Russell 2000: 1 year +37.82%, YTD -3.68%
S&P Midcap 400: 1 year +43.36%, YTD -3.22%
The VIX ended the month at 24.62 and the VXN ended at 25.80. Volatility picked up in January and is now producing better rewards for the risk accepted by selling options. The actual risk might really be lower now since we’re off the highs, but the perceived risk is higher and that’s how option sellers can win, by understanding the difference.
Excellent review… thanks for your transparency.
Thanks Doc, I have to report the good and the bad.