Like every bull invested in the stock market, I had a fantastic month in October. It was hard not to have a good month when stocks had their best month out of the past four years with the S&P 500 adding 8%. I was able to beat the large-cap index again in October because I am still over-invested and also gained from my naked calls on TLT. The trick now is when to pull back on the reigns and be happy with a gain of more than 15% for the year. I’m killing the major indexes’ returns for the past year and the year-to-date, but could always make more, assuming I don’t blow it.
I ended October with a Net Liquidation Value (NLV) of $115,009.78 and a Net Asset Value (NAV) of $115,047.65 according to Interactive Brokers (IB) after finishing September with an NLV of $105,054.44. That gave me a gain of $9,955.34 (~9.48%) on paper for October and a realized gain for the month of $897.27 on only one closing trade. The realized gain came from my 10 TLT October $125 naked calls and $97.27 in dividends from my IWM position. Quicken reported that I have an account value of $115,047.66, a penny more than IB shows, but I left it there to see if it works itself out next month.
With only two months remaining in 2015, I might have some good trades to make still. I have five different options that are set to expire in November and most appear to be up in the air with how they’ll turn out. My DIS November $100 put is on track to expire worthless and I plan to let it run its course since my DIS November $110 covered call is in the money a few bucks. My IWM November $118 covered calls were nearly $3 out of the money at the end of October, but today’s gain pushed them to within $0.50 of the strike. My FEZ November $40 naked calls are in the money still, but recovering fast. I might try to roll them early if FEZ gets close to $38 and I can take a profit on the November puts, otherwise I’ll accept the assignment and write covered calls. My TLT November $125 calls finished October about $2.50 out of the money and could flip on me at any time before expiration. I’ll try to close them early if I can roll out to a good trade on the January contracts.
If all of my naked puts were assigned, I would be 128.27% invested in this account. I am invested 4.53 percentage points lower than I was at the end of September, almost entirely because my account balance improved, not because I took away risk. I didn’t get a chance to check how much time value I had in my options before stocks took off today, but estimate it was more than $2,500. That gives me a little cushion going into the end of the year while I’m over-invested. I need to start planning for my annual withdrawal of any amount over $100,000. Part of the freeing-up of my cash will come from my DIS naked put expiring worthless and my 100 shares being called away. I’m also likely to have my 100 shares of SPY called away in December, so I’ll be in a great situation to rebalance my account when I need to.
This is my asset allocation in my IB account as of the end of October:
- Large-cap ETF: 35.03%
- Mid-Cap ETFs: 22.84%
- Small-Cap ETF: 49.21%
- International: 6.96%
- Individual Stocks & Other Sector ETFs: 18.58%
- Bonds: 0.0% (not including my TLT naked calls)
- Short ETFs: 0.0%
These are my returns according to Quicken through October 30, 2015:
- YTD Return: +15.01%
- 1 Year Return: +17.87%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +9.62%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, October 30, 2015:
- Dow Jones Return: YTD change +1.04%, 1 year change +4.06%
- S&P 500 Return: YTD change +2.70%, 1 year change +5.20%
- NASDAQ Composite Return: YTD change +6.71%, 1 year change 9.13%
- Russell 2000: YTD change -2.53%, 1 year change +0.34%
- S&P Midcap 400: YTD change +0.72%, 1 year change +3.42%
The VIX ended the month at 15.07 and the VXN ended at 17.30. These readings are both nine points below last month’s closing levels. Volatility has been on a steady decline since the late September peak which means we can’t earn as much selling options as we could in the previous two months, but 15.07 and 17.30 are certainly not as far as they can drop.
The CBOE SKEW Index finished October at 125.77, 12 points above the end of September and 19 points below its peak mid-month. The October rally did a lot to calm the markets and it doesn’t appear the big money players are overly hedging yet – maybe they expect the push higher to continue through the end of December, just as the consensus seems to be these days.