Cashflow Report – Paper Income during September 2011

Welcome to my Investing for Cashflow Report – September 2011 Edition!

Every month, I create a “cashflow report” to review the paper income I’ve created from trading covered calls. Analyzing trades is something every investor/trader should do on a regular basis, and I use these reports to do the following:

  1. Help me track my progress towards financial independence
  2. Maintain my focus on increasing paper income and meeting my goals each month
  3. Provide an example of creating an income from investing/trading
  4. Get your perspective


September 2011

Coming into the month, the markets seemed to be on an upswing. But that trend didn’t last long. Highs were set at the beginning of the month, and prices went downhill from there.

The ETF’s I use were still above the strike prices, so all my options were exercised. I wanted this to happen, as the option expiration date was just prior to the Fed meeting on the 20th. Fed meetings are wildcards; until they are held and the markets react, nothing is for certain.

The outcome of the meeting was unremarkable (Operation Twist was flogged long before the Fed even held the meeting). And across the pond, Europe flailed about ineffectually as various nations tried to assure everyone that Greece will avoid defaulting on its debt.

And then we entered a correction per IBD on September 22nd.

September was the second straight month of higher volatility, so there was definitely potential for high cashflow’s. There were several times during the past two weeks that “in-the-money” EDC call options (one price level below the strike price) were selling for a ~20% premium! But on the flip side, leveraged ETFs can move that much in a few days, damaging my ability to create cashflows in the future.

And with that, let’s take a look at September’s cashflow.

Cashflow Report – Paper Income During September 2011 – Breakdown:

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

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

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

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

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

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

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

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

Net Cashflow – September 2011 = $0.00

Goal Not Achieved

Paper Income from Covered CallsGOAL: Execute a covered call trading strategy that creates cashflow greater than $3,600 USD per month, and deposit $3,600 USD per month into an expense account, for 3 months straight.

Not a lot going on last month from a trading perspective. Conditions weren’t right, and I kept my money on the sidelines. And let me tell you, sitting out is hard work when your goal is cashflow every month. In order to recover, I need a monthly cashflow of $7,200 at some point.

What I learned in September

Broke Monopoly ManEven with a trading system, there are periods of time with such high levels of uncertainty that investing and trading on a monthly timeframe isn’t practical. In hindsight, one can always say what they should or shouldn’t have done, but there is no way to protect yourself for that length of time. I’ve written about naked options before, and September was another month that having that ability would have enabled me to safely generate cashflow.

And how about that Thursday/Monday syndrome? Just goes to show you that past performance is not a guarantee of future results. It is another data point to be considered in the overall context of investing and trading.

Rather than focus on the things I can’t control (like the market or current trading limitations), I spent time working on my process. To that end, I opened a separate, online checking account, specifically for my monthly cashflows.

I also need a mechanism to guard against months with zero cashflow. Something Peter Drucker said comes to mind; that companies do not report profit correctly. A profit this year does not guarantee a company stays in business the next year. To that end, a company truly makes a profit after covering all of its current expenses, as well as next year’s expenses. This type of operating process would shield me from months with zero cashflow. In that case, my prior month’s trades need to cover two months worth of expenses…or $7,200 per month. Sounds like a good, longer-term goal.

The Road Ahead

Volatility; great for option premiums, no good for capital preservation. Judging from the price performance since September option expiration, my account balance would have taken another hit, so I’m glad that I didn’t trade. But no trading means no cashflow.

This is the tug of war that I face if I’m going to use options to generate cashflow…especially during secular bear markets.

Related Posts

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

One Response to Cashflow Report – Paper Income during September 2011

  1. June says:

    Setback for September, but overall performance looks positive.

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