If only all months could be like July! I thought I was going to report that July was one of the best months I’ve ever had, but when I looked back at the past 12 months, July 2013 ranked third. Still, it was a very good month as both oil and stocks rose while I was long both. I finished the month within a few bucks of my full year goal. By the time I started writing this entry, my account was above $115,000, which leaves me with five months not to blow it.
I should be able to pull out another $5,115.75 in growth before the end of 2013. I’ll hit $120,000 (20% for the year) if I can gain another 4.45% by December 31. To break it down a little further, my monthly goal is 0.89%. I like to break down my goals to monthly levels to remind me that I don’t have to take big chances to reach my goals. The market will correct again within the next five months, so if I can continue giving myself a good cushion on most trades, I should be able to buy in on the dips and make more than 4.45% over the next five months.
I ended July with a Net Liquidation Balance (NLB) of $114,884.25 and a Net Asset Value (NAV) of $114,914.99 according to Interactive Brokers after finishing June with an NLB of $110,172.95. That gave me a gain of $4,742.04(~4.3%) on paper for July and a realized gain for the month of $1,591.09. I received no in dividends in July. Quicken reported that I have $114,914.98, a penny less than the NAV reported by IB.
My trading picked up in July, but I only have two options scheduled to expire in August. This lack of August options is the price I’m paying for taking it easy in June. I already have four contracts set to expire in September, three in October and one in November. I doubt I’ll add more to September, unless we get a correction and volatility picks up. If stock prices continue to ascend, it’s possible I could close some of my longer dated option contracts during August. If not, I’ll have a small realized gain for the month. As much fun as I have tracking my monthly realized gains, it’s the end goal that matters and I’m going to stay on course to finish the year strong growth in my account, even if it’s not all shown in realized gains.
If all of my naked puts were assigned and my covered calls expired worthless, I would be 116.5% invested in this account. That’s down about 16 percentage points from the end of June. If I removed my UCO ratio spread, I’d only be 93.86% invested. This is a more realistic view of my risk in place. While UCO could move against me and my 10 unhedged puts could be assigned, I have more than a $9 cushion from the current price for UCO. If UCO lands between $28 and $30, I’ll actually make a profit on the decline in price. That’s was my plan, but I might need to adjust it if oil prices continue to rise.
The small and mid-cap indexes are crushing my 12-month returns, but I’ve managed to stay ahead of the NASDAQ, DJIA and SPX. I’m within a rounding error of being tied with the SPX, but I am leading. I’m trailing all five of these indexes for the year-to-date, so it’s going to be an interesting next five months to see if I maintain my lead. August 2012 was bigger for me than July 2013, so I expect to lose my lead by next month on a 12-month basis. This comparison is more for fun than anything. I measure myself on reaching my goals, not what an index that doesn’t balance risk can do.
This is my asset allocation in my IB account as of the end of July, including hedges, but not factoring in covered calls that are in-the-money:
- Large-cap ETF: 13.06%
- Mid-Cap ETFs: 19.15%
- Small-Cap ETF: 35.17%
- International: 6.27%
- Oil: 17.41%
- Individual Stocks & Other Sector ETFs: 16.9%
- Bonds: 0.0%
- Short ETFs: 0.0%
These are my returns according to Quicken through July 31, 2013:
- YTD Return: +15.10%
- 1 Year Return: +25.09%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +6.8%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last day, July 31, 2013:
- Dow Jones Return: YTD change +19.95%, 1 year change +22.36%
- S&P 500 Return: YTD change +19.62%, 1 year change +25.00%
- NASDAQ Composite Return: YTD change +20.10%, 1 year change +23.37%
- Russell 2000: YTD change +23.97%, 1 year change +34.76%
- S&P Midcap 400: YTD change +21.69%, 1 year change +33.00%
The VIX ended the month at 13.45 and the VXN ended at 14.25. These are down a couple of points from last month. They are down more today and will drop even more if tomorrow’s jobs data is good. Volatility levels that come in on the lower end of historical averages are harder to work for option sellers. On one hand, it means the consensus is that prices will be less volatile in the coming months and likely to move higher. On the other hand, the consensus is often wrong and selling premiums with a lower Vega factored in can be costly on a reversal. Trying to wait for a correction can be costly, so I plan to stick with my plan of selling out of the money puts for as long as possible.