Month End Summary – August 2020

August was an incredible month for my account thanks to the drop in TLT’s price and the rise in QQQ’s price. I’m still short 500 shares of TLT and have short options on both sides. I’m also long 100 shares of QQQ with no covered call. I’ve planned to sell a new covered call on QQQ for months, but I haven’t seen a reason to cut off my gains yet. As I’ve said a few times earlier, that day seems to be getting closer.

My account ended August with a Net Asset Value (NAV) of $108,108.24 according to Interactive Brokers (IB) after ending July with a balance of $99,283.20. I had a gain of $8,825.04 (-8.89%) on paper for August (better than the Dow’s 7.57% gain and the S&P’s 7.01% gain). I had $742.83 in realized gains in August from my TLT naked calls and covered puts, not counting the $95.07 dividends I had to pay on my short TLT shares and the $18.92 in short interest I had to pay.

Quicken reported that I have an account value of $108,127.29, which is the same as what IB shows after I subtract the negative $19.05 in interest accruals that IB adjusts in advance of the actual short interest payments.

I’m only 26.15% invested in this account as of the end of August, 0.85 percentage points more than the end of July. I have $79,835.61 left in uninvested cash and three legs of TLT option contracts (five October $155 puts, three October $170 calls, and one October $165 call). This total is definitely off some since I’m still sitting on a $13 paper loss per share on my 500 short shares of TLT, not including the premiums I’ve received. The only trade I might make soon is to sell a covered call on QQQ and maybe buy a put spread on some index ETFs if I think we might see the market rollover soon.

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

• Large-cap ETF: 27.43% (Only QQQ for now)
• Mid-Cap ETFs: 0%
• Small-Cap ETF: 0.0%
• International: 0%
• Individual Stocks & Other Sector ETFs: 0%
• Bonds: -75.01% (not including my TLT October covered puts and naked calls)

Here’s how I compare to the major indexes:

• Dow Jones: YTD change -0.38%, 12-month change +7.68%
• S&P 500: YTD change +8.34%, 12-month change +19.61%
• NASDAQ Composite: YTD change +31.24%, 12-month change +47.88%
• Small-caps: YTD change -8.28%, 12-month change +0.69%
• Mid-caps: YTD change +0.13%, 12-month change +8.53%

My return according to Quicken through August 31, 2020:

• YTD Return: +8.11% (not annualized)
• 1 Year Return: +18.56%

The VIX ended the month at 26.41 and the VXN ended at 34.55. The VIX finished August 1.95 points higher than the end of July The VXN finished 6.62 points higher. The VIX peaked on August 27, when it hit an intraday high of 27.09. The VXN peaked two trading days later, on August 31, at 35.54. Volatility is well above the mean of the past five years, even if it doesn’t feel like it after coming down from the March highs. Being elevated makes the potential gain from selling premiums much better, but the perceived downside risk is greater too. If you aren’t in the camp that believes the market is ahead of itself at the current valuations, this is a good time to take advantage of the richer premiums. If you’re like me, it’s better to keep risk in check, even if it means missing out on more market gains.