August was a good month for me. I started to write that it was “fantastic” since I hit a new monthly closing high for 2014 in this account, but then I just noticed how much better the broader indexes did. It highlights how much I’m underinvested and could take more risks. Then again, just because I could take more risks doesn’t mean I should. That’s the constant debate for any investor or at least it should be.
I ended August with a Net Liquidation Value (NLV) of $107,446.23 and a Net Asset Value (NAV) of $107,413.80 according to Interactive Brokers (IB) after finishing July with an NLV of $104,809.33. That gave me a gain of $2,636.90 (~2.52%) on paper for August and a realized loss for the month of $326.14* on five closing trades. I received no dividends in August since I didn’t own shares of any stocks or ETFs in this account that went ex-dividend while I was holding them. Quicken reported that I have $107,413.80, exactly the same as IB’s reported NAV. The asterisk next to my monthly realized loss is to point out that I moved my gain on the assigned FEZ August $44 puts to reduce the cost per share of my 200 FEZ shares. If I had taken the realized gain in August rather than following the tax laws, I would’ve had $422.40 more and would’ve ended August with $96.26. I’ll try to remember to point out the difference when I sell my FEZ shares and have a larger realized gain. If it wasn’t for my hedge on SPY that cost me more than $750, I would’ve had a solid gain for the month.
I have three options (seven contracts) set to expire in September and could have a realized gain of more than $1,400 if I let them run all of the way through expiration. My MDY September $165 naked put is the only option contract that’s in-the-money. The others are above their strikes. I’m not sure if I’ll let all of them run through expiration on September 19. I might do better to close out a few, if not all, early. If I do close them early, I’ll probably roll them out further on the calendar. The biggest one in question is MDY since it’s still in-the-money and the time value has dropped considerably.
Since I want to increase my exposure again, I will probably couple any more risk with another hedge. We’re starting a couple of months that are often tricky for stocks, but you have to look hard for an indicator that is predicting a major sell-off soon. Maybe the complacency of investors will continue to allow stocks to drift higher. Today’s drop in 20-year Treasuries, seen through the ETF TLT (-1.35% while I write this), makes me worry about what’s on the horizon for the entire market.
If all of my naked puts were assigned and my YHOO put spread lost 100%, I would be 83.28% invested in this account. August’s ending allocation was only 0.20 percentage points lower than how I closed out July. If nothing else, I’m consistent, although my allocation has changed a good bit since last month.
This is my asset allocation in my IB account as of the end of August:
- Large-cap ETF: 0.0%
- Mid-Cap ETFs: 24.66%
- Small-Cap ETF: 28.24%
- International: 15.05%
- Oil: 0.0%
- Individual Stocks & Other Sector ETFs: 8.56%*
- Bonds: 0.0%
- Short ETFs: 0.0%
* Does not include put spread hedge on YHOO.
These are my returns according to Quicken through August 29, 2014:
- YTD Return: +7.37%
- 1 Year Return: +17.31%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +8.25%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, August 29, 2014:
- Dow Jones Return: YTD change +4.84%, 1 year change +18.18%
- S&P 500 Return: YTD change +9.89%, 1 year change +25.25%
- NASDAQ Composite Return: YTD change +9.67%, 1 year change +27.59%
- Russell 2000: YTD change +1.75%, 1 year change +17.68%
- S&P Midcap 400: YTD change +8.13%, 1 year change +23.25%
The VIX ended the month at 12.09 and the VXN ended at 12.71. Both of these month end numbers are more than 4 points lower than their July closing levels. While the non-stop ascent has stopped, volatility has certainly not returned to stock market yet. We’ve seen a flattening, but the 10-day moving average is holding up for SPY, MDY, IWM, QQQ, XLF and more after a week where we had the three lowest volume days on the NYSE of the entire year. I expect volatility to pop higher quickly if the 10-day moving average breaks, but if stocks resume their climb, volatility could melt a little lower.
The CBOE SKEW Index finished August at 127.01, 1.70 points below the end of July. It appears that fear subsided some when the bulls took over during August. This easing in fear doesn’t mean a big correction can’t hit, but that the big money consensus doesn’t think it’s coming soon.