February was nasty for a little while and then patience paid off. I think the lowest intraday balance I saw my account hit in February was around $72,000. I didn’t think bonds would stay high or stocks would stay low, so I waited and watched most of the month. While the indexes were basically flat for the month, I was down considerably, even after bouncing more than 10% off my lows. I have a massive amount of upside potential, but I’ll really need to have TLT move in my favor (lower) to avoid another option assignment and margin call as I saw yesterday.
I ended February with a Net Liquidation Value (NLV) of $80,095.43 and a Net Asset Value (NAV) of $79,641.18 (not counting $8.16 in interest accruals not yet paid) according to Interactive Brokers (IB) after finishing January with an NLV of $88,428.50. That gave me a loss of $8,333.07 (~9.42%) on paper for February and a realized loss for the month of $1,344.21 on three closing trades (one of which was a call assignment on TLT that I won’t take the gain on until I close out the short position). I received no dividends in February. Quicken reported that I have an account value of $79,641.18, the same as IB’s reported NAV.
My account became far from diversified by the end of February and seems to be pushing farther into a holding account for TLT options and short shares. I’m writing this update after the March 1 rally that saw my account gain $5,500 in one day and I have a lot more room to see such gains repeat or reverse. I still expect TLT to fall back to the low $120s by summer and maybe much sooner. If I can hang on for at least half of that decline, I should see my account balance back above $90,000 before long. Retaking $100,000 might take some more work and some more crafty trades, but I don’t think it’s out of reach for the end of the year. However, in 2016, I’ll be smarter about taking more realized losses for tax write-offs than I did in 2015. I wasn’t too smart to carry over so many losses on paper when I had such fat realized gains. Can you tell I just finished my taxes recently?
If all of my naked puts were assigned, I would be 90.41% invested in this account. I am invested 3.72 percentage points lower than I was at the end of January, but this doesn’t truly represent my exposure because my TLT positions are so complicated and overlapping that I haven’t taken the time to work out my spreadsheet to show how every twist and turn should be represented. In short, if it wasn’t for TLT, I would still have 9.59% of my account balance available to invest without going on margin. In reality, I’m pushing the line too close for comfort.
This is my asset allocation in my IB account as of the end of February:
- Large-cap ETF: 24.17%
- Mid-Cap ETFs: 30.35%
- Small-Cap ETF: 38.49%
- International: 0.0%
- Individual Stocks & Other Sector ETFs: 11.92%
- Bonds: 0.0% (not including my TLT naked calls)
- Short ETFs: 163.53%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, February 29, 2016:
- Dow Jones Return: YTD change -4.68%, 1-year change -6.55%
- S&P 500 Return: YTD change -5.09%, 1-year change -6.19%
- NASDAQ Composite Return: YTD change -8.98%, 1-year change -8.17%
- Russell 2000: YTD change -8.80%, 1-year change -14.97%
- S&P Midcap 400: YTD change -4.36%, 1-year change -9.99%
These are my returns according to Quicken through February 29, 2016:
- YTD Return: -20.25%
- 1 Year Return: -5.40%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +6.88%
The VIX ended the month at 20.55 and the VXN ended at 23.55. These readings are within a few tenths of last month’s closing levels. Intraday, the VIX made it above the mid-20s, while the VXN closed above 31.0 for four consecutive days in the first half of the month. Volatility is still elevated enough that selling puts could be profitable as long as you can accept some downside risk.
The CBOE SKEW Index finished February at 117.68, about 2.5 points below the end of January. Surprisingly, the index didn’t fluctuate much throughout February, which ended up being an accurate forecast of better days to come (so far).