Thursday, January 2, 2014

Covered Call Trading Plan Update

After completing my annual review, I've decided to make some changes to my trading plan, goals and reporting format. These changes were brought about by the fact that I've rarely been 100% invested over the past 2 years and have been sitting on a lot of uninvested cash. I only establish positions that meet my criteria, and in rising markets, that means fewer and fewer candidates are available, which leaves more cash on the sideline. Obviously, this uninvested cash lowers the actual return, which doesn't allow me to gauge how well the invested capital has performed. Also, dedicating the extra cash to this account means that the funds are not available to invest in other accounts/strategies when opportunities arise.

Therefore, going forward I'll continue to report both an income and portfolio value return, however, these will be based on invested capital rather than the entire account (i.e. excluding uninvested cash), and the monthly average invested capital will be used to determine the annual returns. My goals will focus more on the monthly return achieved on invested capital. This will allow me to gauge how well the actual money invested in this strategy has met the goal, and will also free up money to be used in other accounts/strategies.

I've converted the returns for prior years to this new reporting format, but since the current reporting format started in 2010, I can only convert 2010-2013, because I don't have the data for 2005-2009 in the correct format. This still provides 4 years of data, which is good enough to establish a trend.

My goal will now be to achieve a 1%+ return per month on invested capital. Again, the amount of capital invested will be determined by how many qualified candidates I can find. As stated above, excess funds may be used for other strategies and/or moved to other accounts.

I'll also be switching to calendar month/year reporting vs fiscal month/year. This makes it easier for me to use the monthly account statements from Interactive Brokers rather than running special reports, and will also allow me to establish positions in weekly expirations during the same month. I may or may not produce weekly expiration reports and may just report on a monthly basis, depending on how time consuming it becomes.

Here's a sample of what the new reporting will look like. These are the monthly results for 2013 and summary of 2010-2013.

Financial Statement for Dec 2013

Income Statement12/20/2013
  
Commissions($1.13)
Dividends$54.50
Broker Interest Paid and Received$0.00
Net Trades (Sales)$7,737.00
Net Trades (Purchase)$0.00
Other Fees($9.85)
Payment In Lieu of Dividends$0.00
Withholding Tax$0.00
Net Income $7,780.52
  
Stocks Sold$7,500.00
Stocks Purchased$0.00
Changes to Net Income($7,500.00)
  
Invested Capital$27,400.00
Total Income$280.52
Percent Income Generated1.02%
  
Value Statement11/15/2013
  
Stocks$22,582.00
Options$0.00
Margin Used$0.00
Starting Value$22,582.00
  
Stocks$13,985.00
Options$0.00
Margin Used$0.00
Margin Returned$0.00
  
Total Income $280.52
Stocks Sold$7,500.00
Stocks Purchased$0.00
Ending Value$21,765.52
  
Total Change in Value($816.48)
Percent Change in Value-3.62%
  

Income Results for 2013

Reporting PeriodInvestedIncomePercent Return
Jan$30,680.00$278.330.91%
Feb$143,480.00$2,033.871.42%
Mar$125,880.00$256.020.20%
Apr$43,650.00$94.800.22%
May$34,550.00($7.23)-0.02%
Jun$26,750.00$46.920.18%
Jul$26,750.00$0.000.00%
Aug$72,400.00$522.730.72%
Sep$119,350.00$1,109.430.93%
Oct$131,683.00$1,554.001.18%
Nov$105,750.00$1,060.421.00%
Dec$27,400.00$280.521.02%
Monthly Average$74,026.92$602.480.81%
Average Annual Return$74,026.92$7,229.819.77%

Value Results for 2013

Reporting PeriodStarting ValueEnding ValueChange in ValuePercent Return
Jan$27,725.70$28,474.88$749.182.70%
Feb$140,996.55$141,718.31$721.760.51%
Mar$122,084.44$121,913.88($170.56)-0.14%
Apr$39,427.86$37,077.56($2,350.30)-5.96%
May$27,882.76$28,967.77$1,085.013.89%
Jun$23,175.00$21,510.12($1,664.88)-7.18%
Jul$21,463.20$22,774.00$1,310.806.11%
Aug$68,424.00$68,921.47$497.470.73%
Sep$115,348.74$115,938.43$589.690.51%
Oct$127,212.00$129,308.00$2,096.001.65%
Nov$101,771.00$101,942.42$171.420.17%
Dec$22,582.00$21,765.52($816.48)-3.62%
Monthly Average$69,841.10$70,026.03$184.930.26%
Average Annual Return $69,933.57$2,219.113.17%

Annual Results for 2010-Present

Reporting PeriodIncomeIncome ReturnChange in ValueValue Return
This Expiration$280.521.02%($816.48)-3.62%
Fiscal 2013$7,229.819.77%$2,219.113.17%
Fiscal 2012$7,226.516.78%$10,344.2010.77%
Fiscal 2011$12,902.958.82%$6,405.994.61%
Fiscal 2010$22,115.559.19%$16,443.888.45%
Total Return 2010-Present$49,474.8234.56%$35,413.1827.00%
Average Annual Return 2010-Present 8.27% 7.94%