End of the Month Summary – March 2011

What looked like might be a good correction in March ended up shaking some froth out of the markets, but not a lot due to its brevity. While I sat there expecting a slightly bigger fall and not such a quick recovery I didn’t add enough new exposure and could’ve done a little better, but at least gained back a little ground on the indexes since some time value melted away while the markets essentially stayed mostly flat. I’m still enjoying being in my longer dated options strategy that didn’t lose much on the dip while I stayed closer to fully invested in my diversified portfolio. This is my allocation in my IB account as of the end of March:

Large-cap ETF: 20.92%
Mid-Cap ETF: 20.10%
Small-Cap ETF: 18.05%
International: 8.20%
Oil: 10.83%
Individual Stocks (mostly large-cap): 18.54%

My allocation percentage went up for each group except for International and Individual stocks. International barely dropped and that came from my lack of any change in shares while my overall account value grew. My Individual stocks shifted a little based on March’s option expiration, but not by much since I replaced the positions that expired with other options. I’ll probably add to the small cap and individual stocks’ allocation next and then hit large caps again if we’re still chugging along higher. With the recent drop again in volatility I am not seeing the premiums close to what they were just a few weeks ago, but there are still some good opportunities out there.

Looking at the LEAPS I have in place already, I should end the year with a gain of around 11.69% if all work out. Without taking on any margin and assuming my other positions earn 10% I could finish the year with a total gain of 15.42%. Once again this is a slight bump higher than I predicted last month since the LEAPS I added are scheduled to gain more than the 10% bar I set for my shorter term contracts. I’m also running slightly on potential margin, so each successful new option contract is gravy on top of what I already have planned. That “gravy” is how I see me getting up to 20% for the year. The fly in the ointment might be my current outlook that we should have one more positive quarter and then Q3 might not be as easy to make money in the short term. It could even start in June as the summer hits and QE2 comes to a close.

I was actually excited when I saw the markets dropping recently for two reasons. First, I was able to open some new positions while it was down and second because I moved ahead of the market’s year to date return. Once the markets turn higher again I went back to trailing slightly for the most part. I have a lot of time value left in the options I’ve sold and most of them are out of the money, so I should be able to make up some ground still assuming we don’t continue to see the markets gaining more than 5% each of the next three quarters. I’m still chasing my 20% goal for the year and am on pace to hit that assuming I’m lagging some now based on the majority of my contracts have time value that is melting slowly. The rate of decay for my time value will pick up pace the closer the contracts get to expiration.

I ended March with a combined balance of $138,992.66.
$121,978.78 with Interactive Brokers in equities (including the deposit of $3,000 I made mid-month)
$17,013.88 with TD Ameritrade in bonds and far OTM index LEAPS

After ending February with a combined balance of $133,150.17, I gained $2,842.49 on paper for March (not including my deposit) and had a realized gain for the month of $289.48, $31 of that was dividends. Quicken reported that I have $121,863.57 with IBKR, slightly less than what I actually have. My AMTD balance in Quicken was $17,013.88, the same as AMTD quoted. I report the Quicken numbers because this is where I pull my performance data for the status below. If all of my naked puts were assigned and my covered calls expired worthless I’d be just over 104% invested in my IB account. With a portion of that being in VXX, which is going to be removed in June, I’m actually a little under invested right now. I think I stand a solid chance of finishing 2011 with an account balance of more than $175k including deposits.

These are my returns according to Quicken through 3/31/11:

My 1 year return: +4.87%
Year to date (YTD): +5.45%
Annualized returns since 4/8/07 (my blog’s beginning): -5.00%
Deposits for month: $3,000 on March 15, 2011

According to Morningstar, here’s how I compare to the major indexes through 3/31/11:

Dow Jones Return: 1 year +16.51%, YTD +7.07%
S&P 500 Return: 1 year +15.65%, YTD +5.92%
NASDAQ Composite Return: 1 year +15.98%, YTD +4.83%
Russell 2000: 1 year +25.79%, YTD +7.94%
S&P Midcap 400: 1 year +26.95%, YTD +9.36%

The VIX ended the month at 17.74 and the VXN ended at 19.74. These are slightly below last month’s levels and aren’t sitting at the best levels to sell options, but volatility still has room to fall more to reach historically low levels. This is the range I start to consider more dangerous with respect to investor complacency. March’s dip got volatility to wake up for a little bit very quickly, but it quickly went back to napping as the markets turned back north.