End of the Month Summary – May 2011

Last month I started out my summary pointing out that we were going to have a down month soon. I didn’t realize it was going to start on the first day of the month and carry through for four uninterrupted weeks (so far), but it has and could keep going. The weakening fundamentals are in a battle with the average valuation of S&P 500 stocks that are not looking too rich yet. The downside still seems somewhat limited, but it’s also hard to ask for much upside potential from here if we aren’t going to get the growth we’d like to move us forward to higher earnings.

I still have a good cushion on the majority of my positions and as opposed to last month, I’m no longer anxious to overload on risk unless something changes. I’ll continue to bounce between flat and slightly higher as the time value of my short options melts away and the intrinsic value increases for my in the money options. Unless I’m selling far out of the money options in the coming weeks it’s hard to find a reason to open new exposure since I still have a decent amount of time value left in my positions and can have a good year without taking on much more risk. I’m still aiming for a return of 15+% for the year. I’m not as sure my more aggressive goal of 20% by the end of the year is still attainable. My best shot might be having plenty of cash left to invest once we get a little bit more of a dip as I try to ride it back from the lows.

I ended May with a combined balance of $148,656.32.
$130,852.94 with Interactive Brokers in equities (including the deposit of $4,000 I made mid-month)
$17,803.38 with TD Ameritrade in bonds and long-dated, far OTM, index options

After ending April with a combined balance of $145,093.56, I only lost $437.24 on paper for May (not including my deposit) and had a realized gain for the month of $504.94. $30.82 of that was from dividends. Quicken reported that I have $129,460.17 with IBKR, slightly less than what I actually have. My AMTD balance in Quicken was $17,703.37, slightly less than AMTD quoted. All of the inconsistencies with Quicken work out by expiration each month and that’s what matters. I’m pretty happy with my small loss since all of the major indices lost more. They didn’t lose enough to pull me ahead for the year yet. That might come by the end of June if this slow slide continues. If the rally resumes I’ll keep trailing since most of my positions are out of the money and have a low beta.

If all of my naked puts were assigned and my covered calls expired worthless I’d be 101% invested in my IB account, pretty much the same as April’s ending percentage. My VXX position expires in less than three weeks and that’ll open up more cash to put to work elsewhere and clear out a useless position. I might even exercise it early and be done with it. I was planning to load up much heavier in May with equities, but the month started off down and stayed that way for four weeks, so I stayed a little more on the sidelines. I’m maintaining my goal of finishing 2011 with an account balance of more than $175k including deposits.

This is my allocation in my IB account as of the end of May:

Large-cap ETF: 19.50%
Mid-Cap ETF: 18.73%
Small-Cap ETF: 22.94%
International: 7.65%
Oil: 7.34%
Individual Stocks: 27.94%

These are my returns according to Quicken through 5/31/11:

Year to date (YTD): +6.2%
My 1 year return: +12.28%
Annualized returns since April 8, 2007 (my blog’s beginning): -3.87%
Deposits for month: $4,000 on May 13, 2011

According to Morningstar, here’s how I compare to the major indexes through 5/31/11:

Dow Jones Return: YTD +9.79%, 1 year +27.30%
S&P 500 Return: YTD +7.82%, 1 year +25.95%
NASDAQ Composite Return: YTD +6.88%, 1 year +25.62%
Russell 2000: YTD +8.71%, 1 year +29.75%
S&P Midcap 400: YTD +10.82%, 1 year +32.96%

The VIX ended the month at 15.45 and the VXN ended at 16.44. The VIX is slightly higher than last month’s closing level and the VXN is barely below last month’s level. These are definitely still low for recent years and also not at the lowest levels when looking farther back on the calendar. Complacency seems to be the mood du jour and that can lead to a sell off quickly. I’m still bullish longer term, but the waning fundamentals have certainly given me pause.