After slumping in August, I was due for another good month and September delivered. My account is within a few bucks of my high balance mark and I have plenty of room for growth without an outsized portion of risk. I could be more aggressive, but don’t have to be since I’ve done well so far this year. As much as I’d like to beat the indexes, I’m getting more and more comfortable with my risk management approach. If I wanted the volatility of the markets, I’d be a passive buy and hold investor. I prefer to reduce risk, even at the cost of reducing rewards in good times.
I ended September with a Net Liquidation Balance (NLB) of $117,369.48 and a Net Asset Value (NAV) of $117,394.93 according to Interactive Brokers after finishing August with an NLB of $114,121.14. That gave me a gain of $3,248.34 (~2.85%) on paper for September and a realized gain for the month of $2,180.14. I received no dividends in September. Quicken reported that I have $117,394.93, but that came after I added a fictitious $0.02 deposit on September 1, to make up for the difference. I was off by $0.02 at the end of last month too, so I opted to reconcile it before it dragged on too long.
I feel a lot better about the likelihood of finishing the year above my original goal of $115,000. Now, I’m starting to focus on reaching $120,000. If I don’t make any more trades, (of course, I will) and all of my current options finish out-of-the-money, I’ll be a few hundred dollars above $120,000. My growth will be based on the erosion of time value over the coming months since I’m not long any stocks or ETFs right now. That also means I don’t have any dividends due. Aside from DIS, I have a decent cushion on most of my holdings, so I don’t need the market to gain for me to reach the next round target. I need to get moving on selling more time value to push my account balance beyond $120.000.
I only have one October expiration option in my account. I’ll roll that out this week probably. Some of my November puts are getting cheap enough to roll “out and up”. I don’t know the last time I’ve been fully in options with no long positions. I like it like this. It gives me more flexibility to take some chances without worrying about going on margin in the near-term. This is also one of the few times in the past few years I haven’t had a play on an oil ETF.
If all of my naked puts were assigned, I would be 109.55% invested in this account. That’s down 17.5 percentage points from the end of August. If I removed my non-leveraged positions that are more than 5% out-of-the-money and my leveraged position that’s more than 10% out-of-the-money, I’d be only 80.93% invested. Those three positions (October UWM $52, November FEZ $36 and SPY $160) are the three I’ll probably close soon and aim higher. If I stay out-of-the-money, but just a little higher on the strikes and maybe out to December, I can increase my potential returns without taking too big of a risk.
The Dow is the only index I’m ahead of for the past year. I’m within a rounding error of the S&P 500’s return, but the smaller-cap indexes are crushing my returns. Clearly, I should’ve been more heavily allocated to small and mid-cap stocks, but their volatility is too much for my needs. I’m happy to pull in better than average historical gains while reducing my downside risks some. Before the last bear market, I was better about beating index returns. However, I also lost more in the slide. Since then, I’ve pulled back on the reins and manage risk as a higher priority than rewards. The true test of my asset allocation and market timing will come with the next real correction.
This is my asset allocation in my IB account as of the end of September:
- Large-cap ETF: 40.56%
- Mid-Cap ETFs: 19.17%
- Small-Cap ETF: 35.19%
- International: 6.13%
- Oil: 0.0%
- Individual Stocks & Other Sector ETFs: 11.08%
- Bonds: 0.0%
- Short ETFs: 0.0%
These are my returns according to Quicken through September 30, 2013:
- YTD Return: +17.54%
- 1 Year Return: +18.34%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +7.05%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, September 30, 2013:
- Dow Jones Return: YTD change +17.64%, 1 year change +15.59%
- S&P 500 Return: YTD change +19.79%, 1 year change +19.34%
- NASDAQ Composite Return: YTD change +24.90%, 1 year change +21.03%
- Russell 2000: YTD change +27.69%, 1 year change +30.06%
- S&P Midcap 400: YTD change +23.23%, 1 year change +27.68%
The VIX ended the month at 16.60 and the VXN ended at 16.73. These levels are less than a point below where they ended last month, but well off the lows seen less than a couple of weeks ago. Stocks sold off slightly (3.26%) from their September highs to yesterday’s low, but volatility didn’t indicate the retreat had much credibility and didn’t even make it above 17.00 after bottoming close to 13.00. These conditions aren’t ideal for selling puts, but they are better than they were mid-September.