March was an up and down month for my account, but I still had less volatility than the major indexes and finished up for the month while most indexes lost ground. I started to hedge late in the month and hope to see the benefits of the hedge later in the year. My TLT short position lost money on the rise in share prices, but more than made up for the difference from my gains earned from option time value erosion. I have seven different options set to expire in a little more than two weeks. I might close some of these early to lock in profits or to cut my losses.
I ended March with a Net Liquidation Value (NLV) of $102,866.27 and a Net Asset Value (NAV) of $102,904.17 according to Interactive Brokers (IB) after finishing February with an NLV of $102,106.02. That gave me a gain of $760.25 (~0.75{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}) on paper for March and a realized gain for the month of $2,466.70 on three closing trades. I paid $176.46 in dividends and $34.66 in interest in March due to my short TLT position. Quicken reported that I have $102,950.73, but doesn’t account for the accrued interest to be paid (by me) of $49.44 that’s due in a few days. On my IB statement, the interest is already deducted, so the difference between what Quicken shows and what IB shows is $2.88, in my favor. I didn’t bother to reconcile the difference yet because I think it’s related to my short position and expect it to clear up when the short position is liquidated and I make my final interest and dividend payments.
If all of my naked puts were assigned, I would be 99.51{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} invested in this account (99.21{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} without the spreads). At the end of February, I was invested 14.21 percentage points lower than I am now. I’m as close to fully invested as I want to be for now. My TLT position could play a big role in my gains or losses over the next few months and will affect how I trade the rest of my account. I doubt I’ll add any new exposure until I start closing out some of my April options.
This is my asset allocation in my IB account as of the end of March:
- Large-cap ETF: 24.30{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- Mid-Cap ETFs: 26.73{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- Small-Cap ETF: 32.57{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} (I accounted for my IWM January 2016 put spread within this)
- International: 7.39{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- Oil: 0.0{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- Individual Stocks & Other Sector ETFs: 10.50{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- Bonds: -88.93{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} (Short TLT)
- Short ETFs: 0.0{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} (not including TLT)
These are my returns according to Quicken through March 31, 2015:
- YTD Return: +3.24{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- 1 Year Return: +11.67{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +8.58{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, March 31, 2015:
- Dow Jones Return: YTD change +0.33{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, 1 year change +10.57{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- S&P 500 Return: YTD change +0.95{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, 1 year change +12.73{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- NASDAQ Composite Return: YTD change +3.48{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, 1 year change +16.72{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- Russell 2000: YTD change +4.32{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, 1 year change +8.21{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
- S&P Midcap 400: YTD change +5.31{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, 1 year change +12.19{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}
The VIX ended the month at 15.29 and the VXN ended at 18.24. The VIX finished March close to two points higher than the end of February and the VIX rose a little less than four points. Both indicators are down from their highs earlier in the month and even at their peaks were not showing anything close to a panic among traders. Each time volatility drops, I view it as a good time to add another inexpensive hedge in case we do get a sell-off that lasts.
The CBOE SKEW Index finished March at 120.35, 6.05 points below its February close. This reading indicates there isn’t a lot of fear in the market and that we shouldn’t see a major sell-off in the near-term. This is one of the reasons I’m buying my hedges so far out on the calendar. Along with the fact that time value erodes more slowly on options with expirations farther away, the next extended slide might be weeks or months away still.
SOURCE: My Trader’s Journal – Read entire story here.
