End of Month Summary – January 2013

This was my best January since 2007.  I finished that year with better than 26% gain.  January 2004 was even better, but I finished that year down some.  I mention those two years to point out that the “January effect” is not a guarantee of big gains for the year.  January often precedes great years and there’s reason to be bullish in 2013, but don’t get carried away with the mass bliss.  I came into the year with a guarded optimism and took profits early twice.  I could’ve made more, but I still beat all of the indexes in January, except for the Mid-Cap 400.  A lot of that gain came from my UCO position as oil rallied from its lows.  In my December summary, I pointed out that oil was beginning a bullish trend.  I didn’t double down, but did place my covered calls far out of the money.  My upside is somewhat limited in UCO from here, but I have enough left not to buy back my covered calls yet.  It might not take much to send oil lower again.

I ended January with a Net Liquidation Balance (NLB) of $106,301.20 and a Net Asset Value (NAV) of $106,227.48 according to Interactive Brokers after starting the year with an NLB of $100,000.00, after removing my 2012 profits of $14,686.93.   That gave me a gain of $6,301.20 on paper (~6.3%) for January and a realized gain for the month of $2,114.09.  I received no dividends during January.  Quicken reported that I have $106,227.40.  Interactive Broker’s NAV is only $0.08 more than the Quicken balance, so I didn’t take the time to research what caused the difference between the two reports.

It’s great to see that I’m nearly half way towards my goal for 2013.  I’d like to grow my account by 15% this year and pull out $15,000+ at the beginning of January 2014.  I don’t have to take big risks to get there after such a great start to the year.  I was expecting the S&P 500 to deliver around 9-11% in 2013 based on valuation.  That estimate might be low if employment and housing continue to improve.  Although I finished the month without being heavily invested, I’ll be forced to jump back in to ride this wave as long as possible.  I want to be situated properly for the next correction and that probably means I’ll stay jittery with my profit taking.  We all know it’s not a question of if, but when the market drops again.  If this rally lasts through April, I can see a major sell in May bias form in the spring.

If all of my naked puts were assigned, my spreads all lost 100% and my covered calls expired worthless, I’d be 54.54% invested in this account.  That’s extremely low for me, but if I didn’t include my hedge for MDY, I’d be 91.6% invested.  I like to look at my figures both ways so I can consider different “what if” situations.  If everything went to $0 (I know, impossible), I’d only lose 54.54%.  However, I’d only have 8.4% remaining in cash if we saw a 3-4% correction and I sold my long MDY puts for a profit and took the option assignment from my short MDY puts.

I have little upside and a fair cushion before any real losses start on the downside.  That’s an intentionally boring allocation for a market that could dip in the near-term, but it’s really too risk averse for a market that should only have a brief sell-off before moving higher by the end of the year.  Premiums aren’t too good right now with volatility down, but that also makes buying calls cheaper.  I might have to go in that direction if I don’t sell some put spreads soon.  I definitely have some decision making I need to get too soon.

This is my asset allocation in my IB account as of the end of January, not including hedges or covered calls:

These are my returns according to Quicken through 1/31/13:

• YTD return: +6.36%
• 1 year return: +14.56%
• Annualized returns since November 18, 2009 (when I opened my IB account): +5.46%