June was a good month for me. I was due for my patience to pay off, but it’s funny that I had one of my better months of the year in the month that the indexes suffered their first losses of the year. The bulk of my paper gains came from oil, just as previous paper losses were caused by oil’s weakness. I only have three weeks to go on a large part of my oil position (through UCO) and then the commodity won’t be nearly as big of an influence on my account. I’ll still have a chunk allocated to UCO, but less than half of my current exposure. That’s assuming UCO stays north of $28.00 and doesn’t close above $33.00 in three weeks. It’ll be interesting to see it play out. I doubt I’ll let my six UCO July $28 covered calls last until expiration. I might close them within a few days and lose a little time value. If UCO is above $33.00 when July expiration comes around, my other six covered calls will come into play and I’ll be completely out of my oil exposure. I’d be happy to get out at $33.00 and then get back in again at a lower strike.
I don’t have a lot more going on. I barely traded in June and I think that shows a little maturity in my trading. I used to try to make a trade every week, no matter what. That kept me adding at peaks, but also at bottoms. It also caused my account to have far too much downside risk. I made more in good years, but lost more in down years. I’m at a point now where I don’t like risk as much. I’m still riskier than many investors my age (41 for a few more days), but I know I’m not in my 30s any longer and don’t need to invest like it. That has led me to cut losses earlier and occasionally to take profits earlier. Along those same lines, I might take a loss on my current AT&T (T) naked puts sooner than expiration and might buy back my UWM July $52 puts before all of the time value melts away.
I ended June with a Net Liquidation Balance (NLB) of $110,172.95 and a Net Asset Value (NAV) of $110,113.48 according to Interactive Brokers after finishing May with an NLB of $107,760.92. That gave me a gain of $2,352.56 (~2.18%) on paper for June and a realized loss for the month of $337.07. I received $70 in dividends in June from QCOM. Quicken reported that I have $110,113.48, the same as my NAV reported by IB. I had to add $1.26 to my Quicken account as of June 1, 2013 since this seems to be a consistent error, possibly due to rounding of multiple trades over the previous months. Since it’s only $1.26, I’m not taking the time to research it, especially since it’s in my favor. I’ve had to do this before and expect I’ll do it again next year or the year after.
This was my first month with a realized net loss in the past year and a half. I expect another realized loss in July due to my UCO shares coming out of my account on a first in first out basis. I should be back to consistent realized gains again by August. EEM was the culprit that brought me down this month. I can usually weather a single $791 loss on a trade, but I had so little in play for June expiration that my gains didn’t make up for the loss this time. I could’ve bought back my IWM puts to keep a gain for the month, but that would’ve just been toying with my money for something that doesn’t actually matter. I’d rather have the better gains by year’s end.
My goal of finishing the year with a 15% return looks much more attainable at the halfway point than it did just a month ago. I only need another 4.38% in six months ($804.51/mo). I wanted to see June’s mini-correction go a little deeper or at least move sideways for a few days longer before bumping higher. I’m not convinced the lows of June will be better than the lows of July and August. This leaves me in a position to be less bullish than maybe I should be, but I don’t have to be overly aggressive to hit my $15,000 goal for 2013. A 20% return is possible, but I need to concentrate on hitting my first goal before I upgrade it. It’s quite possible we could have a better buying opportunity within a few months and then reach for new highs before the end of the year. Our economy appears to be doing OK, but it’s the macro-economic factors out of China, the Middle East and maybe the Eurozone still that worry me.
If all of my naked puts were assigned and my covered calls expired worthless, I would be 132.59% invested in this account. That’s up about 7 percentage points from the end of May. An oversized chunk of my risk is with oil. The risk looks bigger on paper than it actually is. I have a ratio spread on UCO that will gain in value if UCO drops some. If it drops a lot, I’ll cut the position before I’m assigned 1,000 new shares. I’ll do better if WTI oil prices stay closer to $95-100 because I’ll lose money down to $29.00 on UCO from $30.35 at the end of June. In addition, 600 shares of my 1,200 UCO position are coupled with covered calls that are in-the-money. As fast as oil prices change, I’m not going to count any chickens just yet. Three weeks is an eternity for oil pricing.
Thanks to my positive month while the indexes lagged, I reduced the gap between my returns and all major indexes for the year-to-date slightly. I was also able to move ahead of the 12-month returns for the Dow, S&P 500 and NASDAQ. The smaller sized indexes helped me beat the larger cap indexes, but they beat me since I was diversified.
This is my asset allocation in my IB account as of the end of June, including hedges, but not factoring in covered calls that are in-the-money:
- Large-cap ETF: 13.61%
- Mid-Cap ETFs: 0.0%
- Small-Cap ETF: 35.31%
- International: 0.00%
- Oil: 54.57%
- Individual Stocks & Other Sector ETFs: 27.06%
- Bonds: 0%
- Short ETFs: 0.0%
These are my returns according to Quicken through June 28, 2013:
- YTD return: +10.24%
- 1 year return: +21.31%
- Annualized (not cumulative) returns since November 18, 2009 (when I opened my IB account): +5.82%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last day, June 30, 2013:
- Dow Jones Return: YTD change +15.20%, 1 year change +18.87%
- S&P 500 Return: YTD change +13.82%, 1 year change +20.60%
- NASDAQ Composite Return: YTD change +12.71%, 1 year change +15.95%
- Russell 2000: YTD change +15.86%, 1 year change +24.21%
- S&P Midcap 400: YTD change +14.59%, 1 year change +25.18%
The VIX ended the month at 16.86 and the VXN ended at 16.47. Those are essentially the same (within a point) of May’s closing levels. What you don’t see is the spike mid-month close to 22 for both volatility measures. The spike reminded us how quickly volatility can return and to be cautious since trader emotions swing without much warning. Although the 16 range isn’t great for selling premiums, it’s not the bottom of the barrel. I simply need to free up more cash and then I can take advantage of the spikes when they hit.