October was another good month for me. It wasn’t great, but I did well and reached my second goal of hitting $120,000 before the end of the year. As recently as mid-day yesterday, my account balance was still over $120,000. However, the few point drop in the final minutes of trading yesterday brought my balance under the round number goal I set. My goal started at $115k, but I realized fairly early that I needed to aim higher. I’m curious what the market will do through the end of the year and I’m not even setting a new goal yet. More than anything, I want to make sure I don’t lose what I’ve gained. Stocks are up more than 7% from their October lows. That’s huge in just a few weeks. I missed out on a chunk of that rally since I was only invested in out-of-the-money options, but still had an above average month and used the run to roll some positions higher for an early profit.
I ended October with a Net Liquidation Balance (NLB) of $119,968.80 and a Net Asset Value (NAV) of $119,978.31 according to Interactive Brokers after finishing September with an NLB of $117,369.48. That gave me a gain of $2,599.32 (~2.21%) on paper for October and a realized gain for the month of $2,422.93. I received no dividends in October since I don’t own shares of any stocks or ETFs. Quicken reported that I have $119,978.30, a penny below what I actually have. Once again, the rounding errors while downloading trades push me off by a penny. It’s close enough not to worry about it yet.
If all of my naked puts were assigned, I would be 99.01% invested in this account. That’s down 10.5 percentage points from the end of September. If I removed my November DIS puts that are two weeks from expiration and 5.55% out-of-the-money, I’d be only 88.17% invested. I’ll probably roll those DIS puts early next week and might raise the strike by $2.50. This week has started to show some shakiness to it. Yesterday the SPX held support at its 10-day moving average, but support broke today. I’m interested in seeing if we are at the beginning of a slightly deeper dip before I get aggressive and push my potential for margin on option assignments.
More companies than I expected have beat earnings estimates and some of those beat revenue estimates also. It’s possible, there might be more growth in this market based on fundamentals and not simply a rotation away from bonds and multiple expansion. If earnings don’t falter, I have a hard time seeing a 10%+ correction in the next six months. Oddly, that’s what worries me. I feel I’m getting somewhat complacent and have thought about taking more profits while I have them. I have only one November option position and three set to expire in December. Along with the DIS roll I mentioned above, I might roll my three December options into 2014 too. If I do roll these 2013 puts early, I’ll build in a better cushion for a sell-off by bringing in more premiums. It’d be easier to earn better returns if stocks would fall for more than one or two days in a row. The “buy the dip” crowd won’t let much of a dip get started.
I maintained my lead on the DJIA’s 12-month return during October. I’m still trailing year-to-date. The rest of the indexes are much farther along than I am, but that’s to be expected when nearly every option I’ve sold is out-of-the-money with a solid buffer before I’d even take an assignment, much less a loss. I’ve moved into leveraged ETFs on a few positions to give me a better risk adjusted return on small corrections, but that means I’ve opened myself up to bigger losses in the event of a bear market. I don’t want to go fully into leveraged ETFs this late into a bull market, even though I think we have a while before a real correction starts. I’ll continue to try to work this balance while watching the fundamentals and technical indicators for a major reversal.
This is my asset allocation in my IB account as of the end of October:
- Large-cap ETF: 26.34%
- Mid-Cap ETFs: 18.75%
- Small-Cap ETF: 38.34%
- International: 0.0%
- Oil: 0.0%
- Individual Stocks & Other Sector ETFs: 16.46%
- Bonds: 0.0%
- Short ETFs: 0.0%
These are my returns according to Quicken through October 31, 2013:
- YTD Return: 20.12%
- 1 Year Return: +23.90%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +7.43%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, October 31, 2013:
- Dow Jones Return: YTD change +21.02%, 1 year change +21.82%
- S&P 500 Return: YTD change +25.30%, 1 year change +27.18%
- NASDAQ Composite Return: YTD change +29.81%, 1 year change +31.66%
- Russell 2000: YTD change +30.90%, 1 year change +36.28%
- S&P Midcap 400: YTD change +27.81%, 1 year change +33.48%
The VIX ended the month at 13.75 and the VXN ended at 14.88. These are down roughly two and three points from last month’s ending levels. What you don’t see from only looking at the month end levels is that both measures spiked above 20.0 earlier in the month during the fiscal cliff debates. While the 13-15 range is on the lower side of historical volatility, it has been lower this year and might drop further still.