Cashflow Report: Paper Income during April 2011

One step closer to my goal…will May bring me good fortune?

What happened in April?
Actually, April was a pretty quiet month from my perspective. I placed my orders, sat back, and watched things unfold. Although I haven’t stated it anywhere, this is one of my goals as well. Less activity means less costs related to commissions and fees, less stress, and more time for me to do other things (which is the point of passive/paper income streams).

As far as the ETF’s are concerned:
DRN blasted off the second half of the month, climbing from $62 to $80 per share! And without too much volatility…just steady increases.

There are some DRN traders out there who made some good money this month. Unfortunately for me, lower volatility means lower premiums, but not enough to impact cashflow potential TOO much.

EDC dropped about 10% in price over the first half of the month, and then proceeded to gain it back over the second half (establishing a new intermediate uptrend as an added bonus). EDC premiums increased slightly in April as well (~6%)

If I had to guess, there is a good chance I’ll be in all cash when May expiration rolls around.

What I learned in April
By decreasing the amount of time I spent following DRN and EDC, I was better able to resist the temptation to buy back my DRN options and chase capital gains.

DRN will come back down, and those paper gains would have vanished (yes, I jadedly speak from experience).

I still need to find a sweet spot for monitoring price action without getting caught up in it.

Cashflow Breakdown:

DRN-Direxion Daily Real Estate Bull 3X (ETF)

Premiums = $2250 (same as March!)
Dividends = $0.00
Commissions/Fees = ($8.31)

EDC-Direxion Daily Emerging Markets Bull 3X (ETF)

Premiums = $1260.00
Commissions/Fees = ($13.26)

Net Cashflow – April 2011 = $3488.43

SUCCESS PART II! I exceeded my cashflow goal again. This time by ~$490 WITHOUT the help of dividends! “When” I achieve my 3 month goal next month,I plan to make a few tweaks to my goal for 2011. Stay tuned!

Paper Income from Covered Calls

Investing for Cashflow - Performance - 2011-04

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April Option Investing – DRN Covered Calls

As mentioned in my previous post – the April EDC income trade, yesterday mornings sell off offered a good buying opportunity for me.

While I did end up getting shares below $66, I was not so fortunate when it came to call options.

The B/A spread on DRN call options was fairly large when I entered my orders (the ask price was north of $5), and even though I placed my order within the spread, I ended up higher than the ask price when things settled down later in the day.

The good news is DRN clawed its way back above $66, and continued climbing this morning. My original call order ($66 May calls) went through at $4.5.

April Option Investing – EDC Covered Calls

EDC went on quite a ride over the past few weeks. At first glance, this one of those times that selling covered calls did not appear as profitable as trading. But that’s not the whole story.

Since my trading system isn’t set up to trade EDC in a way that would allow me to capture the price action last month, I can safely say that I wouldn’t have made as much money as I would like to think.

And this morning’s drop hit. Can’t say I wasn’t glad to NOT own EDC…it almost fell 10%! Since I did not own anything, it was a buying opportunity, rather than a crying opportunity.

I’ve noticed a trend (totally unscientific observation) that individual investments usually bottom right around lunchtime. I don’t know why this is, but it allows me to keep my powder dry without feeling anxious that I’m going to miss out.

I ended up selling May 20 call options with a $39.35 strike price for $2.40 and $2.60.

April Technical Analysis – DRN and EDC

All of my options were assigned over the weekend, so as of this morning, I was 100% cash. So lets check the tape.


March’s assessment of DRN:

DRN is still in an uptrend, but testing longer term support levels.

The longer term support levels held, and DRN meandered its way higher. Slow and steady, all the way from last July.


Here’s what I said in March:

EDC has moved sideways for most of 2011, and broke some key support levels recently.

As you can see, EDC subsequently rocketed up to $45/share (a measly 28% gain). As of Sunday, it appeared that EDC had found support at the 20 DMA, but broke below that today. On the plus side, EDC did find support near the 50 DMA.

All in all, EDC has bounced around quite a bit, but hasn’t made much progress from the high 30’s since last October.

There was definitely some event driven trading at the market open today, presumably brought on by a token downgrade of US debt by Standard and Poors.

Yes…the same Standard and Poors that missed the boat on all those all those CDOs. Everyone knows that the US has debt issues, and the actual “rating” didn’t change.

I’m guessing the long term effects will be nill, but then again, I’m guessing.

Cashflow Report: Paper Income during March 2011

One word describes this months profit report: SUCCESS!

As if I needed a reminder, March again let me know not to fight the market.

What happened in March?
Here’s where we ended February; yours truly wrote the following:

This month has reinforced the saying “Don’t fight the market”. While the general market seems to have stalled, DRN continues its march higher (reached $70).

Subsequently, DRN kicked off the month by reversing the February uptrend with a 10% drop. After another 8% or so, DRN tested the longer term, July 2010 uptrend (which started with a low of ~$30!) and has ended March on an upswing.

I went on to write:

On the other side, EDC has been moving sideways, but appears to be in a longer term downtrend. With the state of unrest and uncertainty internationally, it doesn’t appear that there is fundamental support for a rally.

EDC was a little more merciful…after a brief stint around $38 to start the month, it headed south again, in line with the short term downtrend. EDC found support at the same time DRN did, but there was not a solid technical reason. I’m assuming the overall market decided it was time to rally, and EDC went along for the ride. Today, EDC sits at its 52 week high (could be a double top, could be a W-base).

At least I got the final comment right: It doesn’t matter what I think. Regardless of whether I am right or wrong, I want to make money.

What I learned in March?
I learned that keeping your inner voice quiet is very hard.

I think investing and trading are a lot like skiing; you continually get better, refine your technique, learn how to use new tools, skills, etc. And for more than a decade, I’ve been doing just that.

I’ve spent countless hours researching market behavior, learning technical and fundamental analysis techniques, studying the mechanics of trading and investing, and even developed my own mechanical trading system. And even with all of that, I STILL had to fight the urge to enter a trade before my tools and rules told me to do so.

March was winding down, and I was SO close to my goal. I tried to convince myself that violating my rules was justified because I would achieve my goal. I mean, that is what this blog is about, right? Half the trading period was already over, and I wouldn’t be exposed for too long (It would be so easy…just…a few…clicks…).

I even tried to use circular logic to convince myself that violating my rules was okay because: 1) The position I needed to buy to meet my goal was a small percentage of my overall portfolio size, and 2) A small position size meant that I was actually following my rules for money management! (WIN-WIN! do it, do it, do it!)

In the end, I was saved by job of all things…didn’t get any time on the computer. When I was finally able to log in to my trading account, my rules said to place and order. So I was able to enter a second position for EDC without breaking my rules AND meet my income goal for March.

Lesson learned – Trading rules do exactly what they are supposed to do…save you from yourself! That’s why you create them before you trade, when you’re thinking rationally.

Cashflow Breakdown:

DRN-Direxion Daily Real Estate Bull 3X (ETF)

Premiums = $2250
Dividends = $0.00
Commissions/Fees = ($13.95)

EDC-Direxion Daily Emerging Markets Bull 3X (ETF)

Premiums = $800.00
Dividends = $130.49
Commissions/Fees = ($17.53)

Net Cashflow – Mar 2011 = $3149.01

SUCCESS! I exceeded my cashflow goal by ~$150! Granted, almost all of that is from the EDC dividend, and I can’t count on that every month. But my monthly cashflows have slowly increased, which is a good sign and gives me confidence for April. The real success will come when I can attain the same cashflow rate regardless of market conditions, but I am thankful nonetheless!

Paper Income from Covered Calls

Investing for Cashflow - Performance - 2011-03

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