End of Month Summary – February 2013

Not every month can increase an account’s value.  February was that unwelcome reminder for me.  I started to add in some more exposure late in the month and also hedged more than I was in January.  I didn’t hedge my oil position at the right time and that’s where I saw my losses add up on paper.  I still pulled out a realized gain and believe I’ve set-up my account for some better gains in the months ahead if the market moves in my favor.

I ended February with a Net Liquidation Balance (NLB) of $104,785.16 and a Net Asset Value (NAV) of $104,757.60 according to Interactive Brokers after finishing January with an NLB of $106,301.20.  That gave me a loss of $1,516.04 on paper for February and a realized gain for the month of $1,584.52.  I received no dividends in February.  Quicken reported that I have $104,755.51, very close to my actual NAV reported by IB.  It looks like my cash balance is off by a couple of dollars, but I didn’t make a manual adjustment in Quicken yet.  I want to see if it clears up in the next few days.  If not, I’ll adjust it in March.

At the end of January, I was half of the way to my full year goal of a 15% return.  After February, I’m not quite a third of the way there and I’m trailing the major indexes that are more than 60% of the way to the annual return I expect.  I’m not heading in the right direction, but it’s important to realize that we’re only 1/6 of the way through the year so far.  I’m doing great based on my return over the past two months combined.  If I can get through a poor month with little pain to show for it, I’ll be fine for the full year, assuming I don’t have too many poor months in relation to the number of positive months.  It will be a lot easier to reach my goal if my new ratio spreads pay off as planned.

If all of my naked puts were assigned, my spreads all lost 100% and my covered calls expired worthless, I would be 80.08% invested in this account.  That can’t actually happen since I’ll profit on some of my spreads if the underlying ETF falls far enough to assign the puts.  My allocation is up from my low investment percentage at the end of January.  However, I’m long a couple of put spreads and those could balance out two of the farther-out-of-the-money naked puts I have in place.  In other words, I might not be invested enough if the market moves higher.  I’m still expecting a deeper dip soon and might add more exposure with new ratio spreads that give me a little upside opportunity if I’m wrong and a solid contribution if I price them correctly.

The biggest swings in my account balance are going to continue to come from UCO.  I’ll be fine if I’m right about oil prices rising.  If I’m wrong and oil prices retreat, I’ll have to delay my gains for when it recovers.  At least my hedge will protect me for a couple of dollars.  My March options expiration set-up is small.  I only have two put spreads (five, two-sided contract pairs in all) and both are in-the-money through today.  I might let them both ETFs be assigned on the short side.  Then I’ll take a profit on the short puts by not buying them back and keeping the original premium.  I’ll also profit from the long put for the underlying ETFs’ decrease in value.  I’ll be sitting on both ETFs with paper losses on the shares themselves and I’ll be more than 130% invested if I take that route, so it’ll depend on what I think these two sectors are positioned to do after the Ides of March.  It would help me if DIA and IWM would sell off sharply over the next two weeks.  We could expect a rally soon after if that plays out.  On the other hand, if we got a rally over the next two weeks, the short puts wouldn’t be in-the-money and the plan would be moot.

This is my asset allocation in my IB account as of the end of February, including hedges, but not factoring in covered calls that are in-the-money:

These are my returns according to Quicken through 2/28/13:

• YTD return: +4.89%
• 1 year return: +11.33%
• Annualized returns since November 18, 2009 (when I opened my IB account): +4.95%