Cashflow Report – Paper Income during June 2011


June was another low maintenance month…or at least it felt that way. My day job required a “little” extra time last month (meaning all my weekends and most weeknights), so I didn’t have much time to babysit my trades anyway.

As far as ETF’s are concerned:
The July call premiums were higher than June for both DRN and EDC, so I expect some volatility.

DRN found support after testing the uptrend at 65-ish and is now back in the middle of its trading range (~$76).

EDC found support at $32 and rocketed back up to $39 over the past 6 trading days. It appears that the May-June downtrend was broken, so we’re back to where we were in May, or October 2010; “range-bound” between $35 and $45.

What I learned in June

I need to add some sort of “time spent per month” figure to my cashflow goal at some point.  Maybe “create cashflow greater than or equal to $3,600 USD per month for 3 months in a row by executing my covered call strategy and spending less than 8 hours per month. I will have to start measuring the amount of time I spend in order to get baseline, but that day may be off in the future a little.  Putting time constraints on a process before you’ve developed a quality product doesn’t make sense.

Cashflow Report – Paper Income During June 2011 – Breakdown:

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

Premiums = $1840
Dividends = $0.00
Commissions/Fees = ($7.68)

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

Premiums = $1715.00
Dividends = $316.28
Commissions/Fees = ($9.71)

Net Cashflow – June 2011 = $3853.89

Paper Income from Covered Calls
GOAL: Create cashflow greater than or equal to $3,600 USD per month for 3 months straight by executing my covered call strategy.

GOAL ACHIEVED*

*$3537. That was my cashflow without the EDC dividend and short term capital gain payout. Just $63 shy of my new goal.

Paper income is paper income, and the dividends did arise as a result of my covered call strategy, so I’m okay with calling June a success! I’ll just add an asterisk for this month and call it even.

The Road Ahead

I have a feeling that next month won’t be so easy. If DRN and EDC continue to their current pace, I will lose purchasing power over the next few weeks. To date, I’ve been able to keep the ceiling at 50k, in terms of money at risk (i.e. in the market).  I’ve been thinking of several tactics that I could use t0 meet my new cashflow goal of $3600 per month.

  1. Add leverage to my trading account.
  • This would immediately increase my returns by allowing me to essentially double the amount of shares that I use for covered calls. I don’t like the idea of additional leverage though. DRN and EDC are already leveraged instruments (3x leverage at that). In order to stay true to the principle of position sizing, I would have to find quite a few new instruments to add to my portfolio in a very short period of time. Without proper research, it is too risky.
  1. Trade new, high volatility (i.e. high premium) instruments
  • This is the long term solution. Eventually, I will need new ETFs in the mix, to manage risk via portfolio size. I’ve traded EDC and DRN for over two years, and am fairly comfortable with their daily and monthly price movements.  New positions will be eased into over a period of time, which also depends on the availability of capital.  There aren’t too many 3x leveraged ETFs to begin with, so adding new positions will take some research.
  1. Add to my current positions in DRN and EDC
  • Actually, this is the easiest route, but my risk will increase because of the increased positions sizes. When options expire in July, I’ll need to figure out what the account balance would need be to keep my risk levels constant, but I have a feeling that it is more than I can allocate to trading covered calls.

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About T. Knight
Blogging about my journey to financial independence via investing for cashflow.

One Response to Cashflow Report – Paper Income during June 2011

  1. Pingback: June 2011 Contest « Income Report Contest

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