Cashflow Report – Paper Income during July 2011

Welcome to my cashflow report for July 2011!

Every month, I review the cashflow (paper income) I’ve created from trading covered calls. I do this for many reasons, but these 4 are a good summary:

  1. To help me track my progress towards financial independence
  2. To maintain my focus on increasing paper income and meeting my goals each month
  3. To provide an example of creating an income from investing/trading
  4. To get your perspective

Enjoy!

July 2011

Last month, I was concerned that DRN and EDC would increase in price so much that after my options exercised, the new purchase price for both ETFs would be much higher than previous months. This would require a larger amount of capital to achieve the same position size (in terms of number of shares)…which is an increase in risk. Instead, prices returned to approximately the same level they were at for June’s cashflow report.

The story on DRN has not changed much; the October uptrend is still intact, yet it is range bound between the mid-60’s and mid-80’s. EDC is still trading between the mid-30’s and mid-40’s, but is definitely in a shorter term downtrend right now. TMF gaped up at the end of the month and pierced the $40 level, but we’ll have to see how the debt default saga plays out. FAS is clearly trending downward.

What I learned in July

From an effort standpoint, creating $3,000 in a given month is pretty easy. My trades don’t require a lot of attention, and the market has been fairly flat for most of the year. However, living off of $3,000+ of paper income every month requires much more focus on minimizing risk, capital loss, and proper budgeting. So while I’ve reduced the execution of trades to something fairly easy, the process for living off of investments is not even close!

My short term goals are well defined and measurable, and I am enjoying the resulting success. My long term goals are still concrete, but I haven’t expanded my thoughts outside of money making.

For example, I haven’t created the process or mechanisms in place to really live off investments. Profits are recycled back into the trading account for the time being. There are still some topics that need to be addressed before I can start weening myself off of a paycheck, such as:

  1. Level of reserves needed in my trading account in order to survive the worst drawdown possible
  2. Tax burden as a result of dropping employer-paid taxes (social security,etc.)
  3. Funding of retirement accounts
  4. Emergency Fund account size
  5. Logistics of moving money from a trading account to a checking account to pay bills
  6. Updated budget
  7. Personal financial goals
  8. Creation of a corporate entity for trading activities?

I also learned that a few of my assumptions haven’t made their way to this blog yet. Specifically, my current risk level is based on a portfolio size of $300,000. This is the goal that I set for the covered call strategy, and I am building up the proper position sizes along the way. My portfolio isn’t there yet, so risk percentages based on my current account balance would be much higher.

Cashflow Report – Paper Income During July 2011 – Breakdown:

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

Premiums = $1566.00
Dividends = $0.00
Commissions/Fees = ($17.49)

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

Premiums = $1200.00
Dividends = $0.00
Commissions/Fees = ($18.78)

TMF-Direxion Daily 20+ Yr Trsy Bull 3X Shares (ETF)

Premiums = $659.00
Dividends = $0.00
Commissions/Fees = ($12.64)

FAS-Direxion Daily Financial Bull 3X Shares(ETF)

Premiums = $332.00
Dividends = $0.00
Commissions/Fees = ($11.26)

Net Cashflow – July 2011 = $3727.64

GOAL ACHIEVED

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.

The Road Ahead

It should be interesting, and that is about all I can say. With the banking crisis continuing in Europe, and our own debt ceiling issues (not to mention the actual deficit), there is no way to know what will happen. Everyone seems to be in a watch and wait mode.

After some thought, I appreciate the impact that leaving an employer will bring. Achieving personal financial goals becomes more complicated without the consistent cashflow from a job. Planning and budgeting properly become much more critical to staying in the black.

I don’t have all the answers today, but stay tuned. These issues will definitely be addressed.

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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 July 2011

  1. Pingback: Cashflow Report – Paper Income during August 2011 « Investing for Cashflow

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