Y’all do know that eventually we’ll have a month that doesn’t make us end with a higher balance, don’t you? It doesn’t seem many people understand that still and the buying keeps pushing the markets higher. I’ve enjoyed the ride as much as anyone, but grow more nervous each month that adds to the streak. At the same time, I understand the move higher. As long as corporate profits continue to improve, we almost have to move higher. This extended rally has set me up with some very big cushions on my outstanding short options. For most of my positions a good 5-8% sell-off wouldn’t affect me much. That means I need to add more exposure. I’m still playing it too safe. If the cushions didn’t show that fact clearly enough then my lagging return behind the major indices makes it crystal clear. In a way I don’t regret how I’ve played it though. I have a nice return for only four months and don’t have a lot of risk on the table. I’m still targeting 15+%, hopefully 20% by the end of the year. I’m on track for that, but don’t expect the entire year to be this easy.
- I ended April with a combined balance of $145,093.56.
- $127,719.36 with Interactive Brokers in equities (including the deposit of $3,000 I made mid-month)
- $17,374.20 with TD Ameritrade in bonds and far OTM index LEAPS
If all of my naked puts were assigned and my covered calls expired worthless I’d be just over 101% invested in my IB account. Since that includes my VXX position which is somewhat “dead money” including the long June puts, I’m invested less than I’d like to be for now. I plan to remedy that this week with some more trades. I still think I stand a solid chance of finishing 2011 with an account balance of more than $175k including deposits. This is my allocation in my IB account as of the end of March:
- Large-cap ETF: 19.97%
- Mid-Cap ETF: 19.18%
- Small-Cap ETF: 17.23%
- International: 7.83%
- Oil: 4.23%
- Individual Stocks: 34.60%
These are my returns according to Quicken through 4/30/11:
- My 1 year return: +7.89%
- Year to date (YTD): +7.74%
- Annualized returns since 4/8/07 (my blog’s beginning): -3.51%
- Deposits for month: $3,000 on April 13, 2011
According to Morningstar, here’s how I compare to the major indexes through 4/30/11:
- Dow Jones Return: 1 year +19.50%, YTD +11.49%
- S&P 500 Return: 1 year +17.22%, YTD +9.06%
- NASDAQ Composite Return: 1 year +16.75%, YTD +8.32%
- Russell 2000: 1 year +22.20%, YTD +10.79%
- S&P Midcap 400: 1 year +25.07%, YTD +12.33%
The VIX ended the month at 14.75 and the VXN ended at 16.54. These are even lower than last month’s levels which I mentioned still had room to fall more to reach historically low levels. Both still have more room to fall before they hits 20 year and 6 year lows, respectfully. That doesn’t mean volatility can’t spike before then. It also doesn’t mean that just because we’re so much lower than the past couple of years that we have to turn here. Market strength and waning volatility can continue for months to come, but betting on that gets more and more risky and less profitable for option sellers.
Have you any thoughts on BP? It seems to be stuck in a range at the moment. I like it long-term and have just sold a Jan 2012 45 Naked Put at $4.40 after commissions and purchased a Jan 2013 Call Option at $3.90 after commissions.
Net Premium intake of the trade was $0.50.
This means that I have $44.50 at risk if BP closes at January 2012 expiry under $45 but have unlimited upside (and a $0.50 premium) if it closed above $50 at Jan 2013 expiry. The alternative was to just sell the Naked Put at $4.40 but I like the potential unlimited upside for the next 21 months with my trade.
I don’t follow it too closely usually, but at a glance you are probably on a good trade. I would’ve agreed with you more if I had seen your comment yesterday, but today (5/5) it fell below support on the oil collapse. Support could hold at the 200 dma and then you’ll be able to sit back and wait for it to climb back above your strike.
I’m tempted to add some new UCO Naked Puts OTM, but every 5 minutes when I look at UCO’s price it’s lower. It doesn’t usually snap back higher as quickly as it falls, so once I see it land I’ll add more exposure there.