End of Month Summary – July 2020

Some months are crazier than others. My ex-wife moved back in with me on the last day of July. My girlfriend is cool with it. The catalyst was that she, at age 48, was diagnosed with Alzheimer’s. We knew she had dementia, but didn’t know what “type” until the Coronavirus lockdown allowed hospitals to resume testing. Now we know and our son and I can help take care of her for the next couple of years until he goes off to college.

The market was crazy too, in its own way. It looked like it was going to roll over and then didn’t and then showed signs of breaking down again, but is up nicely today. I expect much of the same for the next six to nine months as we work through virus hotspots and vaccine rumors. I’ll maintain my concern for downside risk until I see earnings truly return.

Thanks to my TLT exposure, I actually lost money on paper in July while the market moved higher. My QQQ shares and my IWM naked put helped cut those losses, but it wasn’t fun to see TLT push back above $170, especially since I have another five naked calls at the August $170 strike. I could close those options now for a profit of less than $100, but want to keep the risk in place to see if I can get closer to a full profit. I might roll the contracts out to October sooner than later though.

My account ended June with a Net Asset Value (NAV) of $99,283.20 according to Interactive Brokers (IB) after ending June with a balance of $101,541.66. I had a loss of $2,258.46 (-2.22%) on paper for July (below the Dow’s 2.38% gain and the S&P’s 5.51% gain). I had $808.34 in realized gains in July from my IWM naked put, not counting the $95.83 dividends I had to pay on my short TLT shares and the $18.33 in short interest I had to pay plus the $42.43 in dividends I received for my QQQ long shares. I didn’t have to pay the IB charge for monthly minimum trade fees since my balance was over $100,000, but I’ll have to next month.

Quicken reported that I have an account value of $99,303.50, which is one cent less than what IB shows after I subtract the negative $20.30 in interest accruals that IB adjusts in advance of the actual short interest payments. So, after waiting a few months to see if I’d catch a rounding error in the other direction, I added a penny to Quicken to reconcile the difference.

I’m only 25.30% invested in this account as of the end of July, 10.3 percentage points less than the end of June. I have $74,162.78 left in uninvested cash and two legs of five TLT option contracts (five puts and five calls). This total is definitely off some since I was more than $20 in the hole per share on my 500 short shares of TLT and haven’t accounted for my August naked calls and covered puts. The only trade I might make outside of TLT soon is to sell a covered call on QQQ. Other than that, I’m in the TLT hole to stay until it drops. If I’m assigned 500 more shares at $170, I’ll have huge upside potential when TLT drops, but I think I’ll start cutting it close on margin soon and don’t want other positions messing up my plan to ride this out.

This is my asset allocation in my IB account as of the end of July 2020:

• Large-cap ETF: 26.77% (including QQQ)
• Mid-Cap ETFs: 0%
• Small-Cap ETF: 0.0%
• International: 0%
• Individual Stocks & Other Sector ETFs: 0%
• Bonds: -86.12% (not including my 5 TLT August covered puts and naked calls)

Here’s how I compare to the major indexes:

• Dow Jones: YTD change -7.39%, 12-month change -1.62%
• S&P 500: YTD change +1.25%, 12-month change +9.76%
• NASDAQ Composite: YTD change +19.76%, 12-month change +31.43%
• Small-caps: YTD change -12.09%, 12-month change -8.04%
• Mid-caps: YTD change -3.25%, 12-month change +1.67%

My return according to Quicken through June 30, 2020:

• YTD Return: -0.72% (not annualized)
• 1 Year Return: +7.27%

The VIX ended the month at 24.46 and the VXN ended at 27.93. The VIX finished June 4.16 points lower than the end of May. The VXN finished 1.58 points lower. The VIX peaked on July 14, when it hit an intraday high of 33.67. The VXN peaked the same day, at 41.17. Volatility has eased a lot since its June peak and seems to be trending lower still. I’m expecting another shoe to drop to scare the masses before we’re out of this and like the idea of dry powder being available when that day (week or month?) happens. With volatility as high as it is, I think selling out of the money options on either side isn’t a terrible move. Worst case, you can either get shares called away at a higher price than today’s lofty levels or you can be assigned at a more reasonable level than today’s multiple allows.