End of Month Summary – April 2013

April was somewhat of a “blah” month for my account since I finished very close to my March closing balance.  I did well with most of my positions, but my oil holdings and QCOM cost me all of my gains on paper.  Oil limited my realized gains too since I played my UCO ratio spread incorrectly.  I’m still a long-term bull on oil and can handle some dips along the way as I continue to collect premiums from my options.

I read an article yesterday that highlighted some reasons that oil’s downside should be limited to not much below $90/barrel for West Texas Intermediate (WTI closed at $90.91 today).  In short, the Saudi’s will slow production as prices fall, which will decrease supply and increase prices.  In addition, a lot of the smaller wells have high costs to operate and the oil from fracking in the US isn’t cheap to get to either.  Both of these will cut production below the mid-$80s.  A fall into the lower $80s could cut output by more than 15%, which will push prices higher as supply falls.  The biggest risk I see, aside from demand decreasing (which isn’t likely in my view), is a strong dollar.  If the dollar strengthens, prices will drop unless demand or fear of a supply disruption picks up again.

I ended April with a Net Liquidation Balance (NLB) of $107,643.32 and a Net Asset Value (NAV) of $107,579.59 according to Interactive Brokers after finishing March with an NLB of $107,702.78.  That gave me a loss of $59.46 (~0.06%) on paper for April and a realized gain for the month of $1,837.41.  I received no in dividends in April.  Quicken reported that I have $107,579.59, the same as the NAV reported by IB.  Once again, Quicken is back on track with IB.

I’m doing well on my plan to reach a 15% return for the year.  I’m up 7.71% with only a third of the year in the books.  I’ll hit 23.13% by year’s end if I keep this pace going.  The catch is that I don’t think the markets can keep this pace going.  The bonus is that, as mentioned above, oil shouldn’t lose much more and I have a lot of upside left in my position.  Just on UCO premiums alone, I could pull out another 4-5% if I don’t sell covered calls too far out-of-the-money.  Any price appreciation will help even more.  If oil drops, it’ll be up to my other positions to salvage the year as I wait for brighter days in oil.

If I ignore my UCO position and only target growth through other ETFs and individual stocks, I need to earn an average of less than 0.92% per month.  Making option trades that earn 12% annualized isn’t a big challenge.  The risk will come from any correction that comes if/when I get over extended.  I’ve been waiting for a 5% or greater drop to become more aggressive, but the closest we saw in April was a few days lower for the SPX that resulted in an intraday bottom around 4% beneath the highs.  The rubber band snapped the market back to new highs again, but it’s starting to look shaky again as the annual tendency to sell in May and go away is beginning to scare traders from becoming overly bullish.

If all of my naked puts were assigned, my spreads all lost 100% and my covered calls expired worthless, I would be 120.87% invested in this account.  That’s up more than 23% from the end of March.  I have a few positions that are getting cheap and need to be closed early.  My naked puts on DIS and SSO for May are both under $0.20.  My May SPY naked put has a good profit, but might be worth the risk to hold for another two and a half weeks.  It’s roughly 3% out-of-the-money (OTM) from the April close and might be a good place to buy in and sell covered calls.  Now that I write that, I have to wonder if this might be a good time to sell some naked calls farther OTM.  At a minimum, some call spreads could help cushion any near-term declines.

My expected May realized gains improved from last month’s outlook, but still won’t be much.  At least it should be a gain again as I continue my streak of months with realized gains.  June could have very good realized gains based on what I already have in place.  July is going to depend on UCO.  (That’s getting to be a big theme for this account.)  If my July $28 covered calls are assigned, it’ll pull from my 600 shares that I bought last year with an average cost of $35.00 since I use a first-in-first-out lot identification method for taxes.  Even though I just bought shares at $28 last month, I’ll take a $4,200 loss on the shares and my $1,400 in UCO premiums won’t be enough to cover it.  I’m fine with that type of realized loss since my premium intake will have outweighed my share price loss.  I’ll also be able to have a smaller tax bill for 2013 by switching out my lots.  I’ll be hit with a bigger tax burden whenever I sell my other 600 shares that have a real cost of $28.00 per share.

Even with my lackluster month, I’m still ahead of the 1-year return for the NASDAQ.  The rest of the indexes are pulling away from me.  I have plenty of time to catch up.  If I don’t catch up, but reach my 15% return target, I’ll be content.  This is my asset allocation in my IB account as of the end of April, including hedges, but not factoring in covered calls that are in-the-money:

These are my returns according to Quicken through 4/30/13:

• YTD return: +7.71%
• 1 year return: +12.66%
• Annualized returns since November 18, 2009 (when I opened my IB account): +5.45%