I turned in another good month in May and improved on my lead over all the major indexes for the year-to-date again. NASDAQ is the only major index I’m trailing for the past 12 months. While the S&P 500 gained 1.1% in May, I gained 2.33%. Much of my gain came from my short TLT position and the options I had tied to it. TLT wasn’t everything for me. Most of my other options improved in my favor too. 2015 has been a great year for option selling, naked puts and covered calls, thanks to the narrow trading range the indexes have maintained. As stocks bounce around a few percent, those of us who sell options can profit the whole time and are not missing out on big moves to the upside.
I ended May with a Net Liquidation Value (NLV) of $109,008.95 and a Net Asset Value (NAV) of $109,014.55 according to Interactive Brokers (IB) after finishing April with an NLV of $106,524.10. That gave me a gain of $2,484.85 (~2.33%) on paper for May and a realized gain for the month of $4,206.50 on four closing trades. I paid $180.67 in dividends and $48.72 in interest in May due to my short TLT position. Quicken reported that I have $109,038.55, but doesn’t account for the accrued interest to be paid (by me) of $24 that’s due in a few days. On my IB statement, the interest is already deducted, so the difference between what Quicken and IB show is $.05, in my favor. I didn’t bother to reconcile the difference yet because it seems to be related to my short position and the interest accrued that was off by $2.61 last month and $2.58 the prior month. I expect the discrepancy to clear up now that the TLT short position is liquidated and I make my final interest and dividend payments.
I have five options set to expire in June with roughly $900 in time value remaining. My IWM June $126 naked put is the only option I have that’s in the money for June expiration, but I have a profit so far and plan to let it run. I might let it be assigned if small caps don’t rally further. The two long puts I have on IWM for January at $124 allow me to relax. If stocks stay flat or rise at all, I should be above $110,000 by the end of the second quarter and will play the second half of the year more conservatively (probably).
If all of my naked puts were assigned, I would be 91.27% invested in this account (95.67% without the spreads). At the end of May, I was invested 0.29 percentage points lower than I am now. The amount I’m invested is somewhat misleading. The percentage is correct, but since I have two positions hedged, I won’t incur losses on two of my IWM and one of my SPY puts until they fall 11.29% and 9.3% respectfully. In a shallow correction, my losses will be less than my percentage shows. In a bear market, my losses will be close to 95% of the market’s losses after the first ~10%.
This is my asset allocation in my IB account as of the end of May:
- Large-cap ETF: 17.89% (I accounted for my SPY March 2016 put spread within this)
- Mid-Cap ETFs: 25.23%
- Small-Cap ETF: 36.51% (I accounted for my IWM January 2016 put spread within this)
- International: 7.34%
- Oil: 0.0%
- Individual Stocks & Other Sector ETFs: 8.26%
- Bonds: 0.0% (not including my 10 TLT naked calls $5.46 out of the money)
- Short ETFs: 0.0%
These are my returns according to Quicken through May 29, 2015:
- YTD Return: +9.83%
- 1 Year Return: +16.54%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +9.26%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, May 29, 2015:
- Dow Jones Return: YTD change +2.14%, 1 year change +10.28%
- S&P 500 Return: YTD change +3.23%, 1 year change +11.81%
- NASDAQ Composite Return: YTD change +7.05%, 1 year change +19.50%
- Russell 2000: YTD change +3.98%, 1 year change +11.32%
- S&P Midcap 400: YTD change +5.59%, 1 year change +12.28%
The VIX ended the month at 13.84 and the VXN ended at 14.75. The VIX finished May 1.45 below its April close and the VXN finished 3.49 points lower. The sell in May mantra didn’t build much volume as most of May was a boring (and profitable) month. Sentiment has grown less bullish according to various indicators, but that doesn’t mean we’re due for a big move in either direction. I view it as general complacency with valuations above historical averages, but with the potential to normalize with a little more growth.
The CBOE SKEW Index finished May at 122.50, 6.54 points above its April close, but far from an extreme level. Institutional investors appear to have built up some protection going into the summer, but I don’t think it’s in a major fear move as much as a preservation move as summer vacations and lower market volume become the norm.