End of the Month Summary – October 2016

As scary as October can be some years, I had another fantastic month this October. As the S&P 500 declined, my account balance increased. I’m making up for lost ground still, but months like this past one go a long way in helping me get there. The declines in my long shares were more than made up for by the declines in my short shares. Even with a net loss from my options, the net gain from my stocks and ETFs outweighed the negative.

I ended October with a Net Liquidation Value (NLV) of $84,028.47 and a Net Asset Value (NAV) of $84,019.93 according to Interactive Brokers (IB) after finishing September with an NLV of $80,348.45. The difference in month end values gave me a gain of $3,680.02 (~4.58%) on paper for October (while the S&P 500 fell 1.94%) and a realized loss of $901.53 on two closing trades. I received $111.25 in dividends from my MDY shares and paid $385.67 in short interest and dividends for my short TLT shares. The net total was a realized loss of $1,175.95 in October on top of the $7.14 I paid for the balance of my monthly minimum fee. Quicken reported that I have an account value of $84,019.93 the same as IB’s reported NAV after accounting for interest and dividend accruals of -$49.44.

The single covered call I sold has done well while my IWM shares have lost value. As the broken record that I’ve become keeps saying, I should’ve sold more covered calls by now. At this point, I wonder if I should wait until after the election. I could see a little relief rally hit and then sell off when the realization that it’s still earnings that matter most and a single president isn’t going to destroy or cure the business cycle.

If all of my naked puts were assigned, I would be 67.08% invested in this account. I am invested 8.17% percentage points less than I was at the end of September thanks to my account balance increase. This doesn’t completely represent my exposure because my TLT position skews my total risk. I continue to have improvements on my risk of a margin call now compared to the summer months, and have started thinking of opening some new positions. I might wait to clear out some of my TLT short shares first.

This is my asset allocation in my IB account as of the end of October:

• Large-cap ETF: 0.0%
• Mid-Cap ETFs: 32.7%
• Small-Cap ETF: 328.2%
• International: 0.0%
• Individual Stocks & Other Sector ETFs: 11.03%
• Bonds: -203.01% (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, October 31, 2016:

• Dow Jones Return: YTD change +6.36%, 1-year change +5.49%
• S&P 500 Return: YTD change +5.87%, 1-year change +4.51%
• NASDAQ Composite Return: YTD change +3.63%, 1-year change +2.68%
• Russell 2000: YTD change +6.16%, 1-year change +4.11%
• S&P Midcap 400: YTD change +9.39%, 1-year change +6.26%

These are my returns according to Quicken through October 31, 2016:

• YTD Return: -15.28%
• 1 Year Return: -11.26%
• Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +7.33%

The VIX ended the month at 17.06 and the VXN ended at 19.32. The VIX is 3.77 points higher than at the end of September and the VXN is 3.87 points higher than at the end of September. Both volatility measures ended the month at the highs of the month and are starting to show a little more fear going into the final week before the US election.

The CBOE SKEW Index finished October at 126.12, 1.54 points higher than the end of September. The SKEW remained rather subdued through October. The high of the month was on Friday, October 28, when it hit 126.35, barely above the month end close and not predicting any shocks to the market in the near-term.