September pushed my account value lower, but I’m still leading the indexes for the year-to-date by a wide margin. I took profits on my hedges in September and left money on the table since I didn’t sell my puts at the bottom. I could’ve made a few hundred dollars more on both my IWM and SPY hedges, but at least I made a profit as stock prices fell. I also could’ve made more by selling covered calls closer to the money, but I didn’t and still don’t have a covered call on my SPY shares. The premiums on SPY aren’t rich enough for the strikes I’d be willing to sell, so I’m simply staying long and uncovered for now. I will probably place a limit order on a far out of the money covered call before too long because I hate to miss out on easy gains from time value, even if it caps my potential gains on a break out.
I ended September with a Net Liquidation Value (NLV) of $105,054.44 and a Net Asset Value (NAV) of $105,154.72 according to Interactive Brokers (IB) after finishing August with an NLV of $107,371.83. That gave me a loss of $2,317.39 (~2.16%) on paper for September and a realized gain for the month of $2,653.27 on six closing trades. The realized gains came from the IWM and SPY hedges I sold, my September TLT naked calls and my DIS naked put. The other two closing trades were option assignments and the profit was rolled into reducing the price of the stock share purchases and will be realized when I sell the actual shares.
I received no dividends in September since I wasn’t long any stocks or ETFs that had dividend pay dates in September from the time I bought my shares. Quicken reported that I have an account value of $105,057.45, but does not include the IWM dividend accrual of $97.27 with an ex div date of September 25 and a pay date of October 1. The Quicken number (after adding in the dividend accrual) matches IB’s number, but only after I subtracted $0.93 from Quicken to reconcile a cash difference. I’ve been working backwards through Quicken to fix previous months of downloading errors from rounding or trades settling differently than when I first downloaded my transactions. I also had a few option assignments and could’ve made a mistake with the cash on those adjustments. It’s not much money, so I’m not fretting about it enough to research further.
For the final quarter, I’m counting on stocks to regain ground to pull my account higher as opposed to my usual plan of gaining value based on my short options’ time value eroding. I only have one option position with an October expiration, my 10 TLT $125 naked calls. They are out of the money right now, but this ETF has huge fluctuations every week and will likely be far from its current level in two and half weeks at October’s option expiration. I have pocketed the majority of my realized gains from TLT this year and remain bearish on my longer-term TLT outlook. I’m even considering selling another leg of 10 naked calls for the December expiration at a higher strike for a fat premium.
If all of my naked puts were assigned, I would be 132.8% invested in this account. I am invested 45.28 percentage points higher than I was at the end of August. My percent invested shot up in September since I sold my hedges at the beginning of the month. I’m far over-invested for what I should be while stocks lose ground, but since a few of my naked puts don’t expire until January (2 IWM $110) and March (1 SPY $195) I don’t feel the risk is too over the top. I also have one DIS November $110 put that’s out of the money. If those three options expired today and had no time value remaining, I’d be able to take a profit from all of them and close out the risk.
This is my asset allocation in my IB account as of the end of September:
- Large-cap ETF: 36.81%
- Mid-Cap ETFs: 23.71%
- Small-Cap ETF: 52.14%
- International: 7.62%
- Individual Stocks & Other Sector ETFs: 19.26%
- Bonds: 0.0% (not including my TLT naked calls)
- Short ETFs: 0.0%
These are my returns according to Quicken through September 30, 2015:
- YTD Return: +5.98%
- 1 Year Return: +10.66%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +8.37%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, September 30, 2015:
- Dow Jones Return: YTD change -6.95%, 1 year change -2.11%
- S&P 500 Return: YTD change -5.29%, 1 year change -0.61%
- NASDAQ Composite Return: YTD change -2.45%, 1 year change +2.82%
- Russell 2000: YTD change -7.73%, 1 year change +1.25%
- S&P Midcap 400: YTD change -4.66%, 1 year change +1.40%
The VIX ended the month at 24.50 and the VXN ended at 26.82. It might not feel like it to those who have lost money lately, but those reading are four and three points below last month’s closing levels. Selling premiums is a good game to be in right now, unless we see another big swing before options expiration. As long as the markets are stuck in a narrow range, we’re getting paid more to assume the risk.
The CBOE SKEW Index finished September at 113.90 (which could be a misprint from the CBOE since the previous few days were all around 134-136), is down more than 15 points from the end of August. The SKEW peak at 142.93 on September 14, which would have been a good indicator of the upcoming downturn if I had noticed it.