Year End Summary – 2020

Investing in 2020 was much easier than most of us would’ve expected if we were told in advance there was going to be a global pandemic. I was lucky enough to be very thinly invested by the time it became apparent the economy would take a hit. I was unlucky that the bold move I took (shorting TLT) would be very slow to play out in my favor. With as much cash as I had available after the panic selling, I could’ve had a fantastic run as the prices rose beyond previous highs. I didn’t go that route, but still had a good year, in large part thanks to my QQQ position that I didn’t sell a covered call on until later in the year.

My account ended December with a Net Asset Value (NAV) of $114,291.57 according to Interactive Brokers (IB) after ending November with a balance of $111,798.00. I had a gain of $2,493.57 (~2.23%) on paper for December (below the Dow’s 3.27% gain and the S&P’s 3.71% loss). I made two closing trades in December (one QQQ covered call and five TLT covered puts), which gave me a realized gain of $1,185.01. I had to pay net $107.33 in dividends from my 500 short TLT shares (after adding in the $56.13 in dividends I received from QQQ) and $18.20 in short interest for my short TLT shares. TLT had two ex-div dates in December, but doesn’t have one in January.

For the past few years, I’ve rebalanced this account to $100,000 at the beginning of each year. A few days ago, I started to wonder if I should change that move due to the rising prices of the ETFs I like to trade. For example, with QQQ over $300, one 100-share lot is equal to 30% of my account and a 100-share lot of MDY would be over 40% of my account. That doesn’t even factor in the wild fluctuations TLT can have in any given week. So, I decided to take a small step in a different direction. Instead of subtracting my gains for the year, I decided to add to them. I’m going to add $10,708.43 to this account to make my beginning balance (or close to the beginning) $125,000. I decided this today, so I have to wait for the money to move from my TD Ameritrade account to my checking account then to Interactive Brokers. Knowing it’s on the way, I’ll start trading as if it’s already there. At least I would if the market wasn’t down sharply today.

Quicken reported that I have an account value of $114,313.64, which is the same as what IB shows after I subtract a penny due to a rounding error and the negative $22.07 in interest accruals that IB adjusts in advance of the actual payments. By beginning the year by adding money rather than subtracting it, I think I’ll save a little on the short interest fee and know I’ll save on the $10 fee IB charges as a minimum trading total for accounts below $100,000. While I might not have dipped below $100,000 in 2021, the risk is greatly reduced now.

I’m only 25.97% invested in this account as of the end of December, 0.42 percentage points less than the end of November. I have $84,609.79 left in uninvested cash and no options set to expire in January. This cash total is definitely off some since I’m still sitting on a $8.73 paper loss per share on my 500 short shares of TLT, not including the premiums I’ve received. I’m back to a profit on my TLT position when I include the premiums I’ve received since I began this series of trades.

I had $8,911.53 in net realized gains in 2020 after subtracting the short interest and short dividend payments I made. I had a nearly $9,000 unrealized gain on my QQQ shares at the end of December, so I might as well hold onto these shares until they pass the 1 year holding period to make them long-term gains.

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

• Large-cap ETF: 27.45% (Only QQQ for now)
• Mid-Cap ETFs: 0%
• Small-Cap ETF: 0.0%
• International: 0%
• Individual Stocks & Other Sector ETFs: 0%
• Bonds: -69.0% (not including my TLT March covered puts)

Here’s how I compare to the major indexes:

• Dow Jones: 2020 change +7.25%
• S&P 500: 2020 change +16.26%
• NASDAQ Composite: 2020 change +43.64%
• Small-caps: 2020 change +14.58%
• Mid-caps: 2020 change +16.48%

My return according to Quicken through December 31, 2020:

• 1 Year change: +14.29%, much better than a balanced portfolio that would’ve included bonds and some of the above indexes through ETFs

The VIX ended the month at 22.75 and the VXN ended at 26.93. The VIX finished December 2.18 points higher than the end of November. The VXN finished 0.25 points higher. The VIX peaked on December 21, when it hit an intraday high of 31.46. The VXN peaked the same day at 32.79. Volatility finished the year on the low end of its 2020 range, but as the first trading day of 2021 has shown us, that is no indication of how the next 12 months will go. Personally, I welcome a good shake out correction to reset the stage for more realistic expectations.