September was just an ugly month for me. There’s no way to sugar coat it. I expected a flattening or possibly even a rise from the lows of the end of August, but we didn’t see the carry through that started at the end of August, instead we saw further selling and since my account was sitting at a tipping point my losses were bigger than the market’s losses on a percentage basis. Throw in an ill timed short trade using SDS and I lost some more. If the markets can get a rally into the end of the year as many are predicting I should do well since I have so many plays using ultra ETFs that are in the money. I also have a small handful of options that have some time value left to expire. That time value will help propel my returns into the end of the year. More than anything my options are in the money and I don’t have a lot of time value, but more intrinsic value that will require gains lasting more than two or three days. I don’t mind adding more exposure on the bottom side of this trading channel, but am very weary of a break below 1,100 on the S&P 500.
Since most stocks have been caught in a trading channel for the past couple of months I would’ve done better by selling some covered calls closer to the money, but I didn’t and I’m afraid that opportunity has passed. I’m hesitant to sell calls close to the current low prices, but also don’t want to say the same sob story at the end of October. More than likely I’ll ease into some of these calls and while I cap some potential gains I’ll bring in some cash to help reduce my losses and will also leave other shares free to ascend without calls covering them.
This is the breakdown of the numbers for me:
- I ended September with a combined balance of $120,703.59
- $104,314.84 with Interactive Brokers in equities ($6,000 deposit on September 9, 2011)
- $16,388.75 with TD Ameritrade in bonds and longer-dated, index options
If all of my naked puts were assigned and my covered calls expired worthless I’d be 121.53% invested in my IB account, another increase over the prior month’s ending percentage. Like last month I have more options, deeper in the money than the previous month. I took some losses in September to get rid of a couple of dogs and avoided further losses, but just didn’t sell enough early enough in this correction and that caused me to trail the indexes. I’m banking on the fourth quarter being positive and I’m staying long most of my positions. Since I have so much exposure in ultra ETFs I could have a huge end of the year if the markets cooperate or I could fall further as my patience was ill timed. My account is turning into a less actively managed portfolio, not by plan, but by the desire to stay long and not take the losses I’ve already incurred on paper. I’m sure I’ll take some more losses before the end of the year just for tax purposes, but just not quite yet.
This is my most of allocation in my IB account as of the end of September. I have a few like VXX, VNQ and QLD that didn’t fit nicely into these broad categories:
- Large-cap ETF: 26.64%
- Mid-Cap ETFs: 30.29%
- Small-Cap ETF: 28.95%
- International: 0.0%
- Oil: 7.79%
- Individual Stocks: 37.33%
These are my returns according to Quicken through 9/30/11:
- Year to date (YTD): -20.00%
- My 1 year return: -20.27%
- Annualized returns since April 8, 2007 (my blog’s beginning): -12.52%
- Deposits for month: $6,000
According to Morningstar, here’s how I compare to the major indexes through the last day of trading for September 30, 2011:
- Dow Jones Return: YTD -3.90%, 1 year +3.83%
- S&P 500 Return: YTD -8.68%, 1 year +1.14%
- NASDAQ Composite Return: YTD -8.95%, 1 year +1.97%
- Russell 2000: YTD -17.02%, 1 year -3.53%
- S&P Midcap 400: YTD -13.02%, 1 year -1.28%
The VIX ended the month at 42.96 and the VXN ended at 44.98. Both of these are up again from the prior few months’ levels and help increase the premiums on the options we sell. Over the past couple of months when the VIX has risen above 40 it has been a good time to buy stocks again, but that doesn’t mean history will repeat itself yet again. It might, but the VIX has certainly gone above 40 for extended periods in the past and might do it again. Depending on your time horizon, this could be a great time to sell volatility and pocket the premiums or get into some stocks/ETFs at lower prices. Just be ready to take some short term losses if the market turns against you in the near term.
Difficult times for all (well, those with a bullish attitude anyway). I’m eyeing up a few dividend stocks and, depending on how October expiry goes, may start positions in a few. BDX has caught my eye today. It’s at a 52-week low but is a very low-risk choice (just look at the narrow range over the past 5 years). It’s due to raise it’s dividend and, assumming a 4 cent raise, it’s yield will be over 2.5% – I’m not sure, but I think this is the highest it’s ever been. Also, the Premiums are a bit higher than I would expect for such a low-beta stock.
BDX has been a low beta stock historically, but it’s down 21% so far. Everything is getting dragged down, no matter what. That actually might support your case even more, that it’s oversold.
I want to stay on the sidelines a little longer and let what I have ride. Today’s (10/3) lows for the $SPX was awfully close to the Aug low and might count as a good retest. If we see a pop higher this afternoon or tomorrow I might get in deeper, but think I’d prefer to not add any more pain to the situation right now.
Yeah, it’s tough. It’d be a great time if ya were actually out of the market to get back in but it’s difficult when you’re already fully invested – or close to it.
Looking at ITRI, it’s had one hell of a drop over the past week (about 23% since last Tuesdays top). I’ll not be investing but it’ll be interesting to see what earnings bring later this month.
I’m so happy I got out of ITRI. It’s down well over 50% from just earlier this year. I’ll be cutting some positions today (10/4) and taking some risk off the table now that 1,100 broke in the $SPX.