Cashflow Report – Portfolio Income During July 2012

Welcome to the Investing for Cashflow Report – July 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” (hat tip to Pat Flynn over at Smart Passive Income). 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 July 2012

I wish I had something new to report.  I wish that July was a fantastic month.  But wishing is not an investing or trading strategy.  I am now on my 4th month of sub-par returns.

The general markets have whipsawed back and forth since late March, which would normally be a good thing for covered calls.  However, using leveraged ETF’s has been as difficult as the market has been irrational.  Actually, I was looking good heading into the last week of the month.  I just couldn’t hold onto those capital gains.

Lessons Learned in July

Since this is the 4th month in a row of poor returns, it is time to evaluate my strategy again.  This is a habit I picked up from IBD.  After 3 straight losing trades, they recommend regrouping and figuring out what you’re doing wrong.

I started tracking my “return on investment” a few months ago to try and get a better sense of my performance.  A large portion of my portfolio has been on the sidelines, so it makes sense to evaluate my gains based on the money I have at risk in the market (cashflow + capital gains).

Jan =10.5%
Feb = 4.8%
Mar = 8.6%
Apr = 0.5%
May = -18.1%
Jun = -1.1%
Jul = 0.8%

As you can see, May was a pretty bad month with an 18% loss.  But that doesn’t tell the whole story, because I had very little money in the market.  So the return was small, but so was the position.  A positive takeaway is that I made the right decision by lowering the amount of money I had at risk.

Since my goal was to have $100,000 in a trading account (the level I thought was necessary for naked options), I used that number to calculate my “return on assets”, which shows the impact that my trading would have on an account with $100,000.  Here, the maximum loss I should ever see is 10%, since 2% is the max loss per position and I can hold up to 5 positions.

Jan = 3.7%
Feb = 2.1%
Mar = 2.1%
Apr = 0.1%
May = -3.0%
Jun = -0.2%
Jul = 0.3%

May was the only loss above 2%.  Since I held 3 positions at the start of the month and 2 ended up hitting sell limits, a 3% loss is within the loss limits I set.

Based on these numbers, my risk management system seems to be working correctly.

Cashflow Report – Portfolio Income During July 2012 – Breakdown:

Realized Paper Income Gains

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

Premiums = $363.72
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 = $0.00
Dividends = $0.00

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

Premiums = $553.67
Dividends = $0.00

Realized Cashflow = $917.39
Capital Gain = ($599.11)
Profit = $348.28 (0.8% Return on Invested Capital)

Goal Not Achieved

Portfolio Income for July 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

One week into August and TMF is already falling.  Hard.  I could end up with another ugly month in August.  As bad as the last few months have been, they will lead to a better trading system overall.  And so far I’m still in the black for the year, so I can’t complain too much.  In the meantime, I’ll just keep plugging away.

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

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