End of the Month Summary – July 2011

The Dow Jones and S&P 500 both lost close to 2% in July.  That makes my 1.4% loss not feel quite as bad.  If nothing else, it allowed me to pull ahead of the S&P 500 and Russell 2000 year to date returns a little more.  I finally got around to increasing my exposure some, but didn’t go overboard yet and have a lot of cushion left.  My accounts can handle further declines on most of the underlying ETFs and stocks of my positions before I end up with a realized loss on them.  Other parts of my account are ready for this decline to stop as they fall deeper in the money for puts or farther out of the money for covered calls.  July’s losses make my ROI goal for the year slightly more difficult to reach, but with so much time value still in my longer dated options I still have a fighting chance without having to get overly aggressive.

I seemed to have jinxed myself after mentioning in last month’s summary that I hit $150,000 intraday during June.  I surpassed the round number again in July and looked like I was going to cruise safely above it after making a deposit mid-month, but that’s not how it played out.  Increasingly so, my ETFs seem to be better plays than my individual stock picks.  Without hedging my picks I’m taking paper losses that I still expect to be temporary, but that are hurting me currently.  I’m trying to be patient with these dogs since I’m not on margin and my losses (on most) are still manageable.  It does make the allure of ETFs all that much greater though.

My employment contract was renewed so I have another year of w-2 income before I start relying on my advisor business for income.  I’m saving all of the net income from my advisor business and will use it to help cover expenses after my w-2 income ceases.  That mini-next egg will help delay any withdrawals from our real savings in CDs and this taxable brokerage account while I keep pushing to build up my business.  I’m still adding clients and my business income is growing.  This means the beginning of withdrawals from savings won’t be immediate and the draw down of the CDs should be slow and should carry me a solid two years after my contract ends.  That gives me roughly three years from now to get my business built up enough to sustain the portion of our family’s expenses my income covers.  We’ll make less money and won’t be saving for a while, but our quality of living will be nice with respect to the additional time I can devote to stuff for our family.  Eventually my income should be above where I am today and should also be more stable.  That’s the goal at least.

I took a week off as vacation from my contract job in July and also paid my son’s school tuition in the first of two installments.  Those together meant I didn’t have much to send in for investments, but still managed to save some.

• I ended July with a combined balance of $149,331.63
• $129,817.29 with Interactive Brokers in equities (including the deposit of $1,500 I made mid-month)
• $19,514.34 with TD Ameritrade in bonds and long-dated, far OTM, index options

If all of my naked puts were assigned and my covered calls expired worthless I’d be 103.97% invested in my IB account, a little more than July’s ending percentage.  With space between my strikes and the underlying stock/ETFs’ prices getting slimmer by the day I’m no longer sure I’ll be adding a lot of new positions in the near future.  A week ago August looked like it would end with most of my naked puts expiring worthless.  The same view isn’t as clear this afternoon.  I’ll have to get a current portfolio update posted soon to elaborate better on this.

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

These are my returns according to Quicken through 7/29/11: