I finished May with a combined balance of $105,869.10 ($94,665.44 in IB and 11,203.66 in AMTD). Quicken is slightly off the mark as it reports I have a combined balance of $105,924.16. I ended April with a balance of $107,589.47 which means I’m down $1,665.31 in addition to the $3,000 deposit I made at the beginning of the month for a total loss on paper of $4,1665.31 for May. My best trade of the month was probably when I sold my oil (UCO) hedge close to its high price and added more naked puts while oil was still down.
As much as I would have preferred not to lose money in May, it was a nice (small) consolation to lose less than the major indices. I’ve been working this market far too conservatively for too long and once I started getting in deeper it turned south. Since I was using out of the money puts I lost less than the broad markets did. Now that I’ve received some option assignments I actually own the shares now and have written out of the money calls on most of them. I’ll be close to 128.6% invested if all of my outstanding put options are assigned over the next two monthly expirations.
Of course I don’t expect to receive all of these option assignments or I wouldn’t have kept writing them as late as last week. If I do get assigned more than I have cash to buy I’ll start running on margin. In this case I will have bought in a relatively low prices and believe I can manage the positions for a profit, at a reduced risk, using call options from there. This type of market (volatile) is where I have a chance to start moving ahead of the broader markets’ returns because even if the prices drop, I continue to make money from the premiums to cut my losses. Don’t get me wrong, I can certainly still lose money as I proved in 2008, but the rate of loss should be less if I stay diversified and methodical about my option selling. Interactive Brokers’ rock bottom margin rates makes this plan a lot more palatable than when I was using TD Ameritrade as my broker. I still expect to end this year with a decent profit even though I’m down a percent as of the end of May.
My account still has a beta of less than one which means that while I’m better than the DJIA and SPX by a hair I have less daily volatility. That could change within a few hours any day though with a big market swing. Here’s exactly how my returns compare to the major indices as of the end of May.
My 1 year return: +8.05%
Year to date (YTD): -1.10%
Annualized returns since 4/8/07 (my blog’s beginning): -10.67%
Deposits for month: $3,000 on 5/5/10
According to Morningstar, here’s how I compare to the major indices through 5/28/10:
Dow Jones Return: 1 year +22.66%, YTD -1.60%
S&P 500 Return: 1 year +20.99%, YTD -1.5%
NASDAQ Composite Return: 1 year +27.21%, YTD -0.5%
Russell 2000: 1 year +33.62%, YTD +6.29%
S&P Midcap 400: 1 year +34.52%, YTD +5.55%
The VIX ended the month at 32.07 and the VXN ended at 31.61. This higher level of volatility helps bring in better premiums which is part of the reason I sold more options last week. While volatility can certainly spike higher from here the advantage of writing options I don’t mind being assigned is in my favor as the goal is collecting premiums, not trading the actual options or in most cases not using them as a hedge.