At the halfway point of 2016, my account looks terrible. Until I started writing this post, I didn’t realize that I did not make a single trade in June. That didn’t stop me from losing a boatload of money on paper. TLT hit an all-time high and I’m still not hedged. I only have three other positions that I’m long: IWM, MDY, and DIS. Without looking back to verify, I think June was worse for me than any single month in 2008-2009. Still, I’m not panicking. I’m stressed, but fully believe TLT will fall again at some point before I have to exit. I might have to sell shares of my long positions to keep my TLT addiction working, but firmly believe this current bond bubble will bust in an ugly way and I’ll be situated to profit from it.
I ended June with a Net Liquidation Value (NLV) of $76,299.67 and a Net Asset Value (NAV) of $76,372.08 according to Interactive Brokers (IB) after finishing May with an NLV of $87,347.84. The difference in month end values gave me a loss of $11,048.17 (~12.65%) on paper for June and no realized gain or loss for the month since I had no closing trades, but I did pay $394.19 in short interest and dividends for my TLT short shares. Quicken reported that I have an account value of $76,337.10, a penny more than IB’s reported NAV after accounting for interest accruals of -$49.81 and a dividend accrual of +$84.80. I’m letting the difference sit for another month to see if it works itself out after I make some more trades.
I feel it’s too late to add a hedge to my TLT short position now, but also thought the same thing last month. So, once again, I hope not to regret the decision to keep all of the risk in play. For the past few months I’ve mentioned plans to sell covered calls on my long shares of DIS, IWM, and MDY, but I haven’t done it and don’t see it happening in the near-term since we’ve seen a rally from the bottom post-Brexit vote. I need to sell new TLT covered puts to help cover the short interest and dividends I’ll have to pay, but the strikes I’d like to sell are so far out of the money that it’s hardly worth the trade. I will probably have to sell some at a higher strike and, like my July covered puts, not cover all of my short shares.
If all of my naked puts were assigned, I would be 93.65% invested in this account. I am invested 12.65 percentage points higher than I was at the end of May due to the drop in my account value (Stupid TLT!). This doesn’t truly represent my exposure because my TLT position skews my total risk. I’m close to another margin call and will have to be vigilant.
This is my asset allocation in my IB account as of the end of June:
- Large-cap ETF: 0.0%
- Mid-Cap ETFs: 35.70%
- Small-Cap ETF: 45.20%
- International: 0.0%
- Individual Stocks & Other Sector ETFs: 12.82%
- Bonds: -236.66% (not including my TLT options, just the short shares)
- Short ETFs: 0.0%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, June 30, 2016:
- Dow Jones Return: YTD change +4.31%, 1-year change +4.50%
- S&P 500 Return: YTD change +3.84%, 1-year change +3.99%
- NASDAQ Composite Return: YTD change -3.29%, 1-year change -2.89%
- Russell 2000: YTD change +2.22%, 1-year change -6.73%
- S&P Midcap 400: YTD change +7.93%, 1-year change +1.33%
These are my returns according to Quicken through June 30, 2016:
- YTD Return: -22.17%
- 1 Year Return: -15.01%
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +6.46%
The VIX ended the month at 15.63 and the VXN ended at 17.58. The VIX is 1.44 points higher than at the end of May and the VXN is 2.33 points lower than at the end of May. The VIX made it as high as 25.76 and the VXN made it to 24.88 on June 24, the day after the Brexit vote. Both of these spikes were short lived and both volatility measures are trading below their pre-Brexit levels.
The CBOE SKEW Index finished June at 140.58, 12.88 points above the end of May. After bottoming at 125.04 on June 3, the SKEW finished June off the high set on June 28 at 153.66. The June 28 reading was the highest recorded since SKEW started being tracked on January 2, 1990. The previous high was on December 11, 2015 when the indicator hit 146.53 and was a precursor to the lows seen in January and February. Out of the top nine recorded SKEW readings, seven have been since October 2015. The translation in my eyes is that fear is starting to take over market sentiment. That could be bullish as a contrarian indicator or a sign of big money investors foreseeing troubling times ahead.