End of the Month Summary – June 2011

June finished its seventh year in a row as a losing month for the Dow Jones Industrial Average. This helped me gain back some footing on the major indices for most of the month and even pushed me ahead of them briefly, but the final four days of the month saw such a big rally that my lead vanished on the Dow and Midcap 400. I had a lot of my option positions expire in June which helped me stay more in cash than usual while the markets fell. I started adding back some exposure, but not enough or soon enough to ride the past few days’ ride back up. I did gain some more cushion on almost every position I’m in and have a fair amount of time value and even some intrinsic value left to decay over the coming months.

I’m picking up my exposure one day at a time while the risk trade appears to be on still. With half of the year in the books I’m not far behind where I’d like to be in regards to my year to date returns, but since I have a handful of options that expire in January, the majority of their extrinsic value has yet to deteriorate. That will help me a good bit over the next six and a half months. I’m trying to open up more exposure in the front two months to take advantage of the quickest time decay period. As the risk goes up, so does the return.

As I was starting to put this post together yesterday I noticed my combined brokerage accounts broke $150,000 intraday. I think this just happened for the first time yesterday and didn’t hold on until the end of the day by a few bucks. I was close in late May and then started losing ground. I forgot about it for a while, even after adding $3,000 this month since I knew I was down, but this week’s rally did it for me. It’s amazing how fast I got from $100k to $150k when I compare how long it took me to go from $50k to $100k. Throwing a major recession in when I was at $99,000+ didn’t help the race to $100k just as the pay cut around then didn’t either. My contract is up for renewal in the next couple of months and then after that I’ll be working for myself full time as an advisor and might have to take deductions for the first time ever from my trading accounts while I focus my efforts on growing my practice. Hopefully I’ll either build my practice up much better in the next 14 months or will get an offer to become an employee to give me more time to grow my business.

I ended June with a combined balance of $149,958.42.
$132,203.83 with Interactive Brokers in equities (including the deposit of $3,000 I made mid-month)
$17,754.59 with TD Ameritrade in bonds and long-dated, far OTM, index options

After ending May with a combined balance of $148,656.32, I only lost $1,697.90 on paper for June (not including my deposit) and had a realized loss for the month of $7,118.69 due to finally exiting my VXX position. That realized loss was even after I had a handful of other positions close with a profit. The small loss paper loss doesn’t bother me since I faired better than the indices for the month. The realized loss hit on paper many months ago, I just finally got around to closing the position. I received $30.15 in dividends. Quicken reported that I have $132,351.61 with IBKR, slightly more than what I actually have. My AMTD balance in Quicken was $17,751.84 almost even with what AMTD quoted. Quicken flubbed my download from the end of the month and I had to manually enter the prices from the end of the month as a best guess with such wide spreads on the January puts. As their expiration draws closer I expect Quicken to be more accurate. At least by expiration it’ll be exact again.

If all of my naked puts were assigned and my covered calls expired worthless I’d be 97.59% invested in my IB account, a little less than May’s ending percentage. With so many of these positions having a good cushion I plan to add more exposure each week as the longer dated options keep me in a comfortable zone and the shorter dated options expire worthless. I’m maintaining my goal of finishing 2011 with an account balance of more than $175k including deposits. This looks very attainable right now based on the $18,000 in deposits I’m planning to make and $7,000 in growth I expect at a minimum.

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

Large-cap ETF: 19.29%
Mid-Cap ETF: 18.53%
Small-Cap ETF: 22.69%
International: 7.60%
Oil: 8.91%
Individual Stocks: 17.6%

These are my returns according to Quicken through 6/30/11:

Year to date (YTD): +6.56%
My 1 year return: +13.82%
Annualized returns since April 8, 2007 (my blog’s beginning): -3.77%
Deposits for month: $3,000 on June 17, 2011

According to Morningstar, here’s how I compare to the major indexes through 6/30/11:

Dow Jones Return: YTD +8.59%, 1 year +30.37%
S&P 500 Return: YTD +6.02%, 1 year +30.69%
NASDAQ Composite Return: YTD +4.55%, 1 year +31.49%
Russell 2000: YTD +6.21%, 1 year +37.41%
S&P Midcap 400: YTD +8.56%, 1 year +39.38%

The VIX ended the month at 16.52 and the VXN ended at 17.86. These levels are close to what they were at the end of May, but we enjoyed a nice spike during June. I say it was a nice spike because it gave us some opportunities to sell options at higher premiums than we’ve seen out there lately. With some of the data coming through starting to look better again I think volatility will continue to fall. Selling options, mainly puts seems to be the best approach right now. The only other approach worth considering is buying longer dated calls in the hopes the rally lasts longer and can pay off. With cheaper option premiums right now this doesn’t take a lot of capital risk to put in place.