Cashflow Report – Paper Income during November 2011

Welcome to my Investing for Cashflow Report – November 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 (actually making money)
  4. Get your feedback on ways to improve

Enjoy!

November 2011 Overview

Coming into the month, the markets were still in a confirmed uptrend and seeing their first tests of short/mid-term resistance levels (the downtrend set back July). The ETF’s couldn’t break-through the downtrend and around mid-month, selling pressure had increased and the markets entered another correction (Nov 17th). Heading into December, the group of leveraged ETFs appear to be mounting another attempt at the July downtrend.

The good news is that we should see confirmation or an end to the downtrend.

What I learned in November

Using weekly options for FAS did create an increase in cashflow (~$1,162). On the surface, the experiment of weekly option trades was a success. The reverse split for FAS shares made a direct comparison on premiums during November a little difficult to explain. Instead, I’ll try to give some perspective using trades from Nov to Dec. option expiration (Nov 21 through Dec. 17).

Nov 21 = $3.20 premium for a Nov. 26 $54.00 Call (at the time, this option was the first out-of-the-money call)
Nov 28 = $3.10 premium for a Dec. 03 $53.00 Call (at the time, this option was the first out-of-the-money call)
*Dec 5 = ~$3.15 premium for a Dec. 10 $63.00 Call (currently the first out-of-the-money call)
*Dec 12 = ~$3.15 premium for a Dec. 17 $63.00 Call (best guess at the premium for the first out-of-the-money call)

Total = $12.60 for 4 FAS calls
* – These trades are hypothetical. I plan on making them, but the cashflows could be a little off.

Looking back to Nov. 21, FAS was trading just under $56.00. If I assume that a $56 call was the first out-of-the-money call, the premium for a Dec. 17th $56.00 call was ~$6.00.

As you can see, by selling calls every week, the potential exists for double the cashflow!

What about capital gains?

The jury is still out on capital gains, so the total income remains to be seen. My existing shares (a pre and post split combination of shares) were just redeemed by an exercised $53.00 call. My adjusted buy price was $57.07, creating a $4.00 per share loss. This reduces my total from $12.60 to $8.60. The cashflow from the theoretical one month call would reduce from ~$6.00 to $5.00 if the share price remains above $56 for the first half of December ($57 purchase price – $56 strike price).

So I’ll need to wait a bit longer to really gauge the success of this experiment.

Cashflow Report – Paper Income During November 2011 – Breakdown:

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

Premiums = $820.00
Dividends = $0.00
Commissions/Fees = ($6.32)

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

Premiums = $530.00
Dividends = $0.00
Commissions/Fees = ($5.64)

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

Premiums = $435.00
Dividends = $0.00
Commissions/Fees = ($5.63)

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

Premiums = $1,162.00
Dividends = $0.00
Commissions/Fees = ($29.58)

ERX-Direxion Daily Energy Bull 3X Shares(ETF)

Premiums = $1,040.00
Dividends = $0.00
Commissions/Fees = ($6.32)

Net Cashflow – November 2011 = $3,933.51

Goal Achieved

Paper Income from Covered Calls

Investing for Cashflow – Performance – 2011-11

GOAL: 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.

The Road Ahead

Will we see the Santa Claus rally in December, or does the financial crisis in Europe lead us south for the winter? I don’t know. I plan to make money either way!

2011 Cashflow Reports

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

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