Cashflow Report – Portfolio Income during February 2012

Welcome to the Investing for Cashflow Report – February 2012 Edition!

Each month, I review the portfolio income (i.e. paper income or income from investments) created from trading covered calls and create a “cashflow report”.  Analyzing trades is something every investor/trader should do on a regular basis, so this is my attempt to practice what I preach. The reports 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!

Overview of February 2012

February was much like January; the general markets continued higher despite a general expectation of a pullback from most experts. DRN, EDC, ERX, and FAS continued to breakthrough long-term resistance levels, and I continued to ride the uptrend.

Lessons Learned in February

The increased focus on capturing capital gains decreased the return gained from option premiums (as expected). The premiums are lower when selling out-of-the-money calls compared with near-the-money calls. The goal was to avoid the capital losses that wrecked my returns in 2011, so in that light, the increased focus as worked. However, there is a cost, in terms of my return on investment.

My measurement system needs another round of improvements. Actual gains rely on option assignment, which may or may not occur each month. All of my positions were assigned at some point in February, so I can calculate actual capital gains and compare them with my January estimate. Logically, the next step would be to revise my profit number from January.

For example, In January, I estimated my capital gains at $2,426.41, based on my account balance at the end of the month. As you will see below, that actual capital gains that I captured were $2,213.26 (approximately 10% lower). This means that my realized profit for January was $3,498.79, which is below my goal of $3,600.

But my longest stretch between buying a position to open and selling on assignment has been 6 months, which makes meeting monthly goals difficult.

I’ll see what I can come up with this month. In the meantime, I’ll revise January’s method a little, and go from there.

Cashflow Report – Portfolio Income During February 2012 – Breakdown:

Realized Paper Income Gains

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

Premiums = $533.05
Dividends = $0.00

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

Premiums = $454.36
Dividends = $0.00

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

Premiums = $229.36
Dividends = $0.00

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

Premiums = $488.45
Dividends = $0.00

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

Premiums = $0.00
Dividends = $0.00

Realized Cashflow = $1799.58
Estimated Capital Gain = $335.05
Estimated Profit = $2,134.63

Realized Capital Gains

DRN = $563.98
EDC = $1,096.25
ERX = $285.10
FAS = $267.93
TMF = $0.00

Total = $2,213.26
Actual vs. Estimated = 91.2%

Goal Not Achieved

Bar Graph of Profits from Covered Call Trading

GOAL: Execute a covered call trading strategy that creates cashflow profit greater than $3,600 USD per month and deposits $3,600 USD per month into an expense account, for 3 months straight.

The Road Ahead

I realized ~90% of the capital gains from January, which was great. The potential still exists for some nice capital gains in March, but I won’t know until the 16th. I’ve been working on some other aspects of this strategy for the past few months, and I’m hoping to wrap it up in March, so stay tuned.

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

9 Responses to Cashflow Report – Portfolio Income during February 2012

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