Cashflow Report – Portfolio Income During May 2012

Welcome to the Investing for Cashflow Report – May 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


Overview of May 2012

May was similar to April; the general markets spent a majority of the month in a correction.  EDC and ERX continued to fall in price.  DRN and FAS were unable to overcome the general selling pressure and rolled over.  TMF had a much better month, and is back in play after some stellar price action.

Lessons Learned in May

May was less about lessons learned and more about confirming previous “rules”…further proof that sell rules saved me from substantial losses.

Toward the end of February, I was writing about EDC trading in the 120’s and ERX reaching into the mid-60’s.  The end of March brought sell signals at $108.45 and $46.77  for EDC and ERX, respectively.   Those two ETF’s closed the month of May at $68.19 and $34.85, which means that they lost an additional 37% and 25% % since the sell signals…let along the late February prices.    So following the rules for each covered call (100 shares) saved me more than $4,000 in losses for EDC and $1,200 for ERX.

Based on those facts, one would think that using a mechanical trading system makes following the rules easy.  However, you (me) still have to enter the orders, which gives us both a chance to bend the rules based on our emotions.  Why would we (I) bend the rules you ask?  Because following the rules often means watching your gains get swallowed up while waiting for the next signal.

This is what happened with DRN and FAS.  This year’s focus on creating cashflow and capital gains has worked, but also means that I had capital gains to lose if the markets turned south.  And I made the situation worse by trying to make a quick buck and selling in the money calls, rather than just selling ASAP.  Instead of a little extra profit, I received DRN and FAS price drops below the strike of my ITM options, which just added insult to injury.

Cashflow Report – Portfolio Income During May 2012 – Breakdown:

Realized Paper Income Gains

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

Premiums = ($5.02)
Dividends = $0.00

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

Premiums = $0.00
Dividends = $0.00

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

Premiums = $0.00
Dividends = $0.00

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

Premiums = $752.43
Dividends = $0.00

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

Premiums = $663.09
Dividends = $0.00

Realized Cashflow = $1,410.50
Capital Gain = ($4415.33)
Profit = ($3004.83)

Goal Not Achieved

Portfolio Income for May 2012 - Investing for Cashflow

GOAL: Execute a covered call trading strategy that creates 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

April and May have been a bust, with capital losses gobbling up premiums generated by selling calls.  Fortunately, money management and my mechanical trading system have kept my positions to a minimum and limited the damage of falling share prices.   I’m still in the black for the year (~5k).  Not enough to pay the bills, but profit is profit.

I’m not holding my breath for June, in terms of getting back into DRN, EDC, ERC, and FAS.  The specter of a Greek default and exit from the Euro (being called “Grexit”) hangs overhead…not to mention the banking issues in Spain and Italy.  There are no good options across the pond, and the US economy isn’t exactly setting the world on fire either.  I expect the flight to safety to continue, causing further increases to TMF’s share price.

Related Posts


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

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: