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Coming into today’s option expiration, I had three contracts set to expire. My only put was on MSFT at the $115 strike, around $14 out of the money. My IWM $158 strike covered call was out of the money by roughly $4 and my XLF covered call was only a nickel in the money. I expected a little sell-off today as traders hid before the weekend out of fear of a random tweet that would spook the market. With that thought, I didn’t wait until the end of the day to make my two replacement trades and that appears to have been a good idea.

My MSFT May $115 naked put expired worthless, giving me a realized gain of $334.32. I’m waiting to sell a replacement naked put on MSFT to see if it dips some first. The premiums weren’t very good for the out of the money strikes and I don’t want to sell in the money on it. I might go back in with another ETF option instead of MSFT or any other individual stock. Either way, I didn’t pick a next step yet. Now that the market has closed for the day, I just looked back on the MSFT put premiums and see the July $125 premiums aren’t too bad any longer. I’ll have to revisit this idea on Monday.

My IWM May $158 covered call expired worthless too, giving me a realized gain of $250.36. I didn’t wait to replace this call. While IWM was trading at $154.13, I sold one IWM July $158 covered call for $2.41 and received $240.32 after paying $0.68 in commission. I opted to sell nearly $4 out of the money to give me more upside if the market bounces. If stocks don’t recover and we see prices move lower, I’ll be happy that I didn’t replace my MSFT naked put yet and will be able to put that cash to work at lower prices. That tradeoff will make the sting of not selling a lower strike covered call a little easier to digest. If stocks rally, I’ll be happy I left a good chunk of upside potential in my position. If my call is exercised, I’ll earn 4.07%, 23.38% annualized. If the call isn’t exercised and IWM stays flat, I’ll earn 8.96% on an annualized basis for capping my earnings potential.

My two XLF May $27 covered calls gave me a reason to pause for a minute. I thought about letting my 200 shares get called away since XLF spent most of the day between $27.00 and 27.10. I thought about waiting until the last minute to see if XLF would fall below its strike and save me from having to pay to close my May calls. After a few minutes of weighing the choices, I decided to go ahead and roll the calls. However, the only near-term expiry was in June. I wanted to push it out to July, but those contracts won’t be available until Monday. So, while XLF was trading at $27.06, I bought to close my May calls and at the same time sold two new XLF June $27 covered calls. My limit order was for $0.52 on each combination and I received $99.34 after paying $4.66 net in commission. The two orders hit 12 seconds apart, even though I entered them together. I paid $0.08 for one of the May calls and $0.09 for the other. That means I received $0.60 for one of the June calls and $0.61 for the other.

As luck would have it, an hour and a half after my trades hit, XLF started to crack. It closed for the day at $26.88, which means I didn’t have to buy back my May calls since they would’ve expired worthless. The June calls’ bid/ask finished at $0.51/.054, so I know I could’ve sold these for $0.52. The end result is I paid a few bucks extra in commission at the most.

If my 200 shares of XLF are called away, I’ll earn 1.99% or 20.25% annualized, based on where XLF was trading when my order hit. If XLF sinks again, at least I cut almost $0.50 per share from my losses.

Sometimes selling before the end of the day works out and sometimes you miss out on a few bucks. I’m glad I made my trades when I did because my new IWM covered calls finished with a bid/ask of $2.03/2.07, which means I’m ahead $36 or so on paper (although the drop in IWM’s share price this afternoon is greater than that). If I’ve learned anything trading for the past 20+ years, it’s not to sweat the minor swings that cost you a few bucks on occasion. It all works out in the wash over enough trades.

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April was a good month for me, not S&P 500 good, but good for my personal goals. Technically, I’m fully invested, however I’m sitting on a MSFT naked put that only has a few cents of time value left in it and I should put that money to work elsewhere. I don’t think I have any big distractions coming at me in May, so I should be able to get some more trades in to push me closer to where I should be on the risk side.

My account ended April with a Net Asset Value (NAV) of $92,169.78 according to Interactive Brokers (IB) after ending March with a NAV of $90,005.66. I had a gain of $2,164.12 (~2.4%) on paper for April (below the S&P 500’s 3.93% gain for the month). I had $1,664.22 in net realized losses, which includes my two closing trades (loss on my AAPL covered call and a full gain on my MDY naked put), $57.75 in interest and no dividends.

Quicken reported that I have an account value of $92,107.29, which is the same as what IB shows after I add in the $62.49 in interest accruals that IB credits in advance of the actual payment. I subtracted a penny from the rounding error I found a couple months ago to bring my account back into sync with IB.

I’m 97.68% invested in this account as of the end of the month, 1.06 percentage points above the end of March. I have $2,141.77 left in uninvested cash, but it’s misleading as I noted at the top. My MSFT May $115 naked put is worth about a nickel and is almost $15 out of the money. My IWM May $158 covered call is basically at the money, so I should gain $225 in time value over the next two and a half weeks. My XLF May $27 covered call is $0.85 in the money with $0.15 in time value remaining.

I need to go ahead and replace my MSFT naked put since I’m 99% sure it won’t be assigned. I’ll let my IWM covered call run longer to see how it plays out. I’m also content to let my XLF covered call be assigned. It will probably be assigned, but XLF is volatile enough that I’m not messing with it for now. Most likely, I’ll have more than $19,000 to put to work in May and need to get moving on it based on the probabilities of assignments.

This is my asset allocation in my IB account as of the end of April:

– Large-cap ETF: 20.72% (through QQQ)

– Mid-Cap ETFs: 38.52%

– Small-Cap ETF: 17.17%

– International: 4.18%

– Individual Stocks & Other Sector ETFs: 18.56% (most of this is large cap since I have 200 XLF shares, and one MSFT naked put included here)

– Bonds: 0.0%

– Short ETFs: 0.0%

According to Morningstar, here’s how I compare to the major indexes (including dividends) through the last trading day, April 30, 2019:

– Dow Jones: YTD change +14.79%, 12-month change +12.63%

– S&P 500: YTD change +18.25%, 12-month change +13.49%

– NASDAQ Composite: YTD change +22.01%, 12-month change +14.56%

– Russell 2000: YTD change +18.48%, 12-month change +4.61%

– S&P Midcap 400: YTD change +19.09%, 12-month change +6.99%

My return according to Quicken through April 30, 2019:

– YTD Return: +7.65% (not annualized)

– 1 Year Return: -10.56%

The VIX ended the month at 13.12 and the VXN ended at 16.60. The VIX finished April 0.6 points lower than the end of March. The VXN finished 0.02 points lower. The VIX peaked on April 9, when it hit an intraday high of 14.39. The VXN peaked on the same day at 17.82. These readings remain decent levels to sell volatility – not too cheap and not too complacent. I’d rather have volatility a little higher to push premiums up some, but it’s not enough to whine about. Beginning today, we’re in the sell in May and go away period. It hasn’t been a terribly accurate mantra for a few years and yet it’s still worth paying attention to based on its longer historical accuracy.

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My Trader's Journal by Alex Fotopoulos - 3w ago

I’ve been slow to replace my AAPL naked put that expired a week ago. Part of that delay in action was due to my expectation of some weakness hitting stocks and the other part was just due to time constraints from work and life in general. I got caught up today, mostly, and finally got to take another look at my own trading account.

Not only had I not replaced my AAPL April naked put, I saw that my MSFT May $115 naked put was trading under a dime after MSFT the earnings release that pushed the stock above $130 as of this morning. I wouldn’t be surprised to see MSFT “fill the gap” down to the highs reached before the earnings call, but I’m not banking on it. Rather than roll my MSFT put, I opted to go back to my plan of selling index options instead of options on individual stocks.

While QQQ was selling at $190.14, I sold one QQQ June $191 for $4.44 and received $443.32 after paying $0.68 in commission. I usually sell out of the money puts and decided to go in the money this time to take essentially the same risk/reward approach as I would if I was selling an out of the money covered call.

Anyone who tells you he or she can predict where stock prices will be in two months while the QQQ is at a record high is likely a bit overconfident in their abilities. I think the QQQ has room to move a bit higher, but I’m not convinced enough to buy the shares outright or buy a long call option. By selling this naked put, I’ve given myself a 1.88% cushion before I take a loss on a dip in prices. If QQQ gains 0.45% to move above my strike, I’ll earn 2.38% or 15.26% annualized. I considered an at the money strike of $190 for June, but the difference was only 0.28% of a better loss buffer. The higher strike offers a potential gain of 0.22% more. That’s not a lot to brag about, but I’d rather have a 15.26% annualized gain than the 13.85% the at the money strike could deliver.

Now that this trade is complete, I need to find something else to replace my MSFT naked put. Let me know if y’all have some suggestions. I doubt I’ll do much stock research this weekend since I have a busy couple of days planned with a day trip to our farm and then celebrating Greek Easter with family on Sunday after watching Avengers Endgame.

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I had two options expire today. One was an MDY April $350 naked put and the other was an AAPL April $175 covered call. The AAPL covered call finished deep in the money. I should’ve dealt with it a few weeks ago, but just didn’t keep my focus on my own account as much as I should’ve (recurring story here). That lack of focus was partly related to my work load for my clients and the other part was my growing expectation for a sell-off near-term. 

My AAPL series of trades, beginning with my initial naked put, finished with a realized net loss of $3,759.41. That hurts, especially since AAPL is trading above $200 this week while I’m selling my shares at my $175 strike. I made the decision to take what I could get when I sold the covered call versus trusting my initial plan to stay long for longer on AAPL. The decision not to roll it sooner came from my plan for 2019 to leave individual stocks on the sidelines as I focused on sticking to index ETFs as much as possible.

Speaking of index ETFs, my MDY April $350 naked put moved out of the money two weeks ago. I opted not to roll it before today because I thought MDY needed to come down a little from the upper $350s where it traded since last Friday. This morning, it looked like MDY had found some footing during the Barr briefing on the Mueller report. I expected a sell on the news type reaction and when I didn’t see it, I decided to go ahead and sell a new MDY naked put.

While MDY was trading at $355.75, I sold one MDY June $355 naked put for $7.00 and received $699.74 after paying $0.26 in commission. I could’ve sold it for 10 cents more five minutes before I entered my limit order, but as MDY rose, I lowered my ask price. Eventually MDY dropped enough for my order to hit and then the sell on the news reaction hit, at least a little. MDY quickly fell another $1.50 and I saw bid/ask prices that indicated I could’ve sold my put for $0.80 more than I did. The good news is it recovered into the close.

I decided to make the MDY put trade when I did since I knew my AAPL shares would be called away and I’d have cash available if we saw a major sell-off start after I created more exposure to the market. The good news is my MDY April $350 naked put finished out of the money by enough to make me not wish I had sold a higher strike while still giving me a realized gain of $699.75. 

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My Trader's Journal by Alex Fotopoulos - 1M ago

The chart below shows the weekly prices for the past two years for SPY, an S&P 500 index ETF, after closing the week at 288.57 on April 5, 2019.

SPY has moved higher in a tight trading channel since its low on December 24, 2018. As of Friday’s close, the large-cap ETF rested at the top of that narrow trading channel marked by its trend lines of higher highs and higher lows. At a glance, technicians would normally call for the next move to be lower, towards the trend line of higher lows. The price action may play out like that, but the downside is limited to around eight points in this scenario. This tight range makes it something to watch, but not something bulls should fret over unless support at the lower trend line does not hold the prices within its upward trend.

The more important trading channel is the longer one that goes back to the summer of 2017 on the low side and early 2018 on the high side. The downside risk within this trading channel is approximately 9% lower from Friday’s close. The upside potential is close to 4%. In most investors’ eyes, that ratio is not the risk/reward balance we’re looking for. Bulls will have to expect this resistance line of higher highs to break and allow the S&P 500 more upside room to move. Bears are starting to lick their chops in the hopes of a return to $260 for SPY, if not all of the way down to its lowest trend line of lower lows. This bottom trend line could offer support after an 18% decline. If stocks fall this low on a reaction to the technicals, value investors and technical traders will back up their trucks to buy as much as possible at depressed prices during an economic cycle that’s still expanding.

The 200-week moving average might help stop SPY from reaching the lowest trend line, but only by $5-10 based on the current spread between the two indicators. In other words, we should expect to see cash coming off the sidelines on the buy side if SPY reaches the lower $240s.

The Williams %R indicator helps validate the call for limited upside, maybe. This technical indicator has a definite art to it versus a completely black and white signal sometimes. For now, the 14-week period indicates an extremely overbought market. Ideally, to signal a sell warning, the 28 and 56-week indicators should match the 14-week’s signal, as we saw in late December when all three timeframes lined up to signal a buy call. This is where the “maybe” part of the prediction comes in. If SPY reaches the upper trend line of higher highs within the next two weeks, the 28 and 56-week indicators for Williams %R should show an extreme overbought signal at the same time.

If the upper trend line acts as resistance to higher prices, the Williams %R indicators show momentum has moved too far too fast, and the SPY is 25% above its 200-week moving average ($300 SPY and $240 200-week moving average), then the bears will be in the catbird seat with a huge gap to fill to the downside.

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March was a pretty good month for my account, although I’m still not too close to being fully invested like I should’ve been after the recent small price dip for stocks. While I’m still nervous about when (not if) we will have another meaningful correction, I need to stick with my trading to stay up with the good times while we have them.

My account ended March with a Net Asset Value (NAV) of $90,005.66 according to Interactive Brokers (IB) after ending February with a NAV of $89,304.93. I had a gain of $700.73 (~0.78%) on paper for March (ahead of the Dow’s 0.05% gain and below the S&P 500’s 1.79% gain for the month). I had $113.70 in net realized losses, which includes my two closing trades (XLF and IWM covered calls), $23.84 in interest and $71.34 in dividends (FEZ, XLF, and IWM). Quicken reported that I have an account value of $89,953.65, which is a penny more than what IB shows after I add in the $52.02 in interest accruals that IB credits in advance of the actual payment. I’m going to wait a little longer to see if $0.01 the rounding error fixes itself.

I’m 96.62% invested in this account as of the end of the month, 12.65 percentage points above the end of February. I have $3,046.19 left in uninvested cash, but it’s misleading. My Apple covered call was almost $15 in the money at the end of March and doesn’t have much time value left in the contract. I need to go ahead and close it or at least make a replacement trade soon. I was hoping for a deeper dip in March to let me buy in cheaper and I’m still kind of hoping for it as stocks continue their rally today.

I have two options remaining that expire in April. One is my one AAPL $175 covered call I just mentioned and the other is my MDY $350 naked put that was less than $5 in the money on Friday, but it’s just under a dollar in the money as I write this mid-morning on the first of the month. This MDY position has been a bit of a barometer for me for whether or not I should be more heavily invested. While it’s in the money, I’m less inclined to jump in head first, but if it gets closer to a full profit, I might edge in deeper.

I still haven’t decided about transferring more money into this account to bring it back to $100,000. Maybe I’ll try to get to that move by June 30 as the halfway mark for the year. One delay to that decision was making sure I didn’t owe much on taxes. Instead, I ended up getting little bit of a refund after adding some extra money to my SEP-IRA.

This is my asset allocation in my IB account as of the end of March:

– Large-cap ETF: 0.0%

– Mid-Cap ETFs: 38.89%

– Small-Cap ETF: 17.01

– International: 4.07%

– Individual Stocks & Other Sector ETFs: 33.88% (most of this is large cap since I have 100 AAPL shares, 200 XLF shares, and one MSFT naked put included here)

– Bonds: 0.0%

– Short ETFs: 0.0%

According to Morningstar, here’s how I compare to the major indexes (including dividends) through the last trading day, March 29, 2019:

– Dow Jones: YTD change +11.81%, 12-month change +10.09%

– S&P 500: YTD change +13.65%, 12-month change +9.50%

– NASDAQ Composite: YTD change +16.49%, 12-month change +9.41%

– Russell 2000: YTD change +14.58%, 12-month change +2.05%

– S&P Midcap 400: YTD change +14.49%, 12-month change +2.59%

My return according to Quicken through March 29, 2019:

– YTD Return: +7.65% (not annualized)

– 1 Year Return: -10.56%

The VIX ended the month at 13.72 and the VXN ended at 16.62. The VIX finished March 1.06 points lower than the end of February. The VXN finished 0.55 points lower. The VIX peaked on March 7, when it hit an intraday high of 17.81. The VXN peaked on March 22 at 20.42. These readings remain decent levels to sell volatility – not too cheap and not too complacent. Throw in the fact that April is the third best month for S&P 500 returns (after December and November), and we might squeak out another good month before a real sell off hits.

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My Trader's Journal by Alex Fotopoulos - 1M ago

Five minutes before the market closed yesterday, my limit order for a new naked put hit and I didn’t have time to write-up my trade details before leaving for my son’s track meet. (2 PRs for him!) I entered my limit order mid-afternoon and then saw MSFT running away from me, but I didn’t chase the trade. That’s one of the advantages of not being overly bullish. I can wait for the trade to come to me and if I miss out on it, I’m fine.

While MSFT was trading at $116.53, I sold one MSFT May $115 naked put for $3.35 and received $334.32 after paying $0.68 in commission. If MSFT stays above my strike, I’ll make 2.99%, 21.04% annualized. I have a 4.26% cushion from a loss and could even see MSFT drop 1.4% before my profits are cut at all.

Just a few days ago, MSFT hit an all-time high of $120.65, which it reached at the very end of the day. The bullish attitude didn’t hold and MSFT slipped for the next few days. I didn’t catch the low of the day yesterday at $115.53 and could’ve made more, but I think my risk level on this trade is relatively low. Of course, a turn in the overall market would sink all ships temporarily, but MSFT should hold on better than most.

It did fall below its 10-day moving average yesterday and even closed below it. That’s a warning sign and worth noting. The 20-day moving average has offered solid support on dips for the past month and a half. I expect it to hold on this draw down too. If this new option is assigned, my cost per share will be $111.66. That’s below the trend line of higher lows that began in early January. It’s also below the horizontal line that was resistance around $13.25 before MSFT broke above it on March 12. This line is the important one for technicians to watch, especially since it is on a path to converge soon with the trend line of higher lows that I just mentioned.

If these two technical hurdles don’t provide support, MSFT could fall to its 200-day moving average ($107.52 and climbing). This line is close to the 50% Fibonacci retracement area. I’d have a paper loss around $4 if that’s where MSFT bottomed, but since I don’t expect further weakness below it, MSFT could rebound before my option is assigned. Better yet, it could be assigned and then I could write a $115 covered call for additional income.

This trade pulls me within spitting distance from being 100% invested, where I haven’t been in a while. However, my AAPL April covered call is more than $13 in the money. I expect these shares to be called away and give me $17,500 (from my $175 strike) to work with. I’m not in a rush to buy the AAPL call back since there’s still $0.90 of time value left in it, but I am looking for a better investment return elsewhere. I just don’t have to rush into something new as long as I have some potential gain from my current holdings.

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I only had two options set to expire today. Both were covered calls and both were in the money. My IWM call was deeper in the money while my XLF covered call had a profit off and on during the afternoon. I started with my IWM call and then rolled my XLF calls.

I don’t have a high degree of confidence that the rally in small caps can keep going without more of a drawdown first, but I’m somewhat sticking to my plan to sell out of the money covered calls on shares that I own. While IWM was trading at $155.29, up $0.94 on the day, I bought to close my one IWM March $151 covered call for $4.31 and sold one IWM May $158 covered call for $2.51. I paid $0.64 in commission, which brought my net payment to $181.28 to roll the option.

I received $214.33 when I sold the March call in January, so I ended up taking a loss of $217.31, including commissions on both trades. IWM was trading at $145.77 back then, so I got roughly $8 of the $10 gain in the ETF after balancing out my premiums received and paid. It’s not ideal to miss out on gains, but it’s hard to be upset with a 5.5% gain in two months.

If my new May call is assigned, I’ll earn $521.36, which is a 3.36% gain and 19.18% annualized. The reason I said that I was “somewhat” sticking to my plan is because I’ll earn 9.21% annualized from the premium alone if IWM stays flat by expiration. My plan was to sell calls that would net a 5% gain when not assigned. The reason comes back to my lack of confidence that this pace of gains can continue.

My XLF calls showed a loss most of the day, but in the late afternoon, XLF weakened enough to allow my limit order to earn a tiny profit for me. While XLF was trading at $26.54, I bought to close my two XLF March $26 covered calls for $0.55 and paid $110.74, including $0.74 in commission.  When I sold these March calls two months ago, I brought in $113.17 after commission. To save your calculator work, that’s a $2.43 profit, enough for the cost of gas to get to my girlfriend’s house, but not the return trip. I made this trade separate from my new covered calls trade to make sure I could earn a profit, even if just a couple of bucks. Had XLF not dropped enough for my order to hit, I would’ve let my shares get called away for the same reason I hesitated on my IWM strike. XLF might have limited upside, if any upside at all. It’s stuck under its 200-day moving average that it hasn’t closed above since October, more than five months ago.

Since I’m only risking about $5,300, I decided to sell out of the money calls for May. While XLF was trading at $26.54, I sold two XLF May $27 covered calls for $0.47 and received $91.56 after paying $2.44 in commission. Like my IWM covered call, my annualized return of the premium only is much higher than my plan accounted for. If XLF stays flat, I’ll earn 10.11% annualized from the premium alone. If assigned, I’ll earn $172.50, which is 3.24% or 18.53% annualized.

As much as I’m questioning how much is left in the current stage of the bull market, I had to force myself to sell these out of the money calls. I might not have done it if I was fully invested, but with $14,134 unused in cash, I opted to give myself less of a cushion on my current positions. If prices fall, I can put the remaining 16% of my account to work at lower prices.

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Like most bulls, I had a nice gain in February. I would’ve made much more if I had been fully invested and if my covered calls didn’t move in the money on a few of my positions. Still, I gained back some of my lost ground and that’s a good thing. I stuck to my plan of using out of the money covered calls on my positions, but I didn’t have enough positions for the cash I had available and that caused me to miss out.

My account ended February with a Net Asset Value (NAV) of $89,304.93 according to Interactive Brokers (IB) after ending January with a NAV of $87,697.00. I had a gain of $1,625.93 (~1.85%) on paper for February (trailing the Dow’s 3.67% gain and the S&P 500’s 2.97% in February. I had $3,544.07 in net realized losses from my six closing trades (AAPL, ADI, and XLB covered calls and the underlying shares for each). This total includes $146 in dividends from AAPL and $10.83 in interest payments in February. Quicken reported that I have an account value of $89,282.92, which is a penny more than what IB shows after I add in the $22.02 in interest accruals. Per usual, I’m going to wait another month or two to see if the rounding error fixes itself.

I’m 83.97% invested in this account, 4.98 percentage points above the end of January. I have $14,315.58 and that’s after my trade on MDY yesterday that accounted for $34,300 of my sideline cash. I really ran through February with much less at risk. I have two options remaining that expire in March. One is my one XLF March $26 covered call that’s already in the money by $1.67. It has ~$.11 in time value left. The other option is my IWM March $151 covered call that’s $7.10 in the money and has $0.37 in time value remaining. I mentioned this IWM call yesterday. It’s looking more likely that I need to allocate those funds to a new position or simply roll the call early. I’ve been waiting for a small correction and since we haven’t had one, I’ve missed out on further gains. My internal debate now is how much I should add to my account before a dip versus continuing to be patient.

I was thinking for adding more to this account to reach $100,000 again and haven’t made a decision yet. I’m torn between investing and working it to grow, adding to my emergency fund, or saving it towards buying a Tesla Model 3. I want to get a Tesla, but I’d want the $40,000 model and my current car is paid off and runs great. It’s only a 2013, so it’s hard to part with it this young. The last option is that I could move money from my other investing account. It’s the same to me as far as how much I’d have in a taxable account, so this might be the best move for what I want. It’s all kind of moot if I’m not fully invested with the cash I have in this account already.

This is my asset allocation in my IB account as of the end of February:

– Large-cap ETF: 0.0%

– Mid-Cap ETFs: 39.19%

– Small-Cap ETF: 17.63

– International: 4.07%

– Individual Stocks & Other Sector ETFs: 19.57% (most of this is large cap since I have 100 AAPL shares and 200 XLF shares included here)

– Bonds: 0.0%

– Short ETFs: 0.0%

According to Morningstar, here’s how I compare to the major indexes (including dividends) through the last trading day, February 28, 2019:

– Dow Jones: YTD change +11.62%, 12-month change +5.95%

– S&P 500: YTD change +11.48%, 12-month change +4.68%

– NASDAQ Composite: YTD change +13.52%, 12-month change +3.57%

– Russell 2000: YTD change +17.03%, 12-month change +5.58%

– S&P Midcap 400: YTD change +15.14%, 12-month change +4.14%

My return according to Quicken through February 28, 2019:

– YTD Return: +5.33% (not annualized)

– 1 Year Return: -13.77%

The VIX ended the month at 14.78 and the VXN ended at 17.17. The VIX finished February 1.79 points lower than the end of January. The VXN finished 3.07 points lower. The VIX peaked on February 7, when it hit an intraday high of 17.89. The VXN peaked the same day at 21.96. These are decent levels to sell volatility – not too cheap and not too anxiety filled. That doesn’t mean stocks can’t roll over from here, but if they do, we’ll get a little reward. A good 3-5% price drop could help us out on pushing vol higher to give us an opportunity to open new positions.

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My Trader's Journal by Alex Fotopoulos - 2M ago

I’ve been ridiculously gun shy about making new trades lately for fear of losing money again. Also, I’ve been busy, but I probably could’ve made time to trade more in my own account if I wasn’t being so nervous about what could happen. My rationale is based on how far we’ve come over the past two months. If nothing else, we need a longer consolidation period if not a good 4-5% draw down to help reset expectations.

I pushed myself out of my bearish funk some today and made my first opening trade in a while. While MDY was trading at $348.78, I sold one MDY April $350 naked put for $7.00 and received $699.75 after paying $0.25 in commission. Not only did I finally make a trade, but I sold the put in the money to push for a better return.

I thought about the April $345 strike for $5.10, which would’ve offered a 2.59% cushion and a potential 10.68% annualized return, but thought I should force myself to take a bigger risk since my 100 IWM shares are covered with a call that’s $6 in the money and expires two weeks from tomorrow.

By selling the $350 strike, I have a cushion before a loss of only 1.68%, but have a potential return of 2.01%, 14.32% annualized. If assigned, it will be a difference of $320 that I could’ve saved if I had gone with the lower strike. If it’s not assigned, I’ll earn $180 more than what the lower strike would’ve provided.

MDY moved above its 200-day moving average eight days ago and hasn’t closed below it since then, but has tested the long-term moving average yesterday and today. The mid-cap ETF is 1.67% below its intraday high from three days ago. I expect more downside since I’m not terribly bullish at these levels, but I don’t think the weakness will be back breaking and won’t last longer than I can stomach.

It’ll be easier to handle a dip since I still have 16% of my account in cash and can buy more at lower prices if that’s how the next couple of weeks work out. If my IWM covered call is assigned in two weeks, it will open up another $15,100 that needs to be invested. I don’t plan on waiting the full two weeks if I think it has a high probability of getting called away. Then again, if MDY falls below its 200-day moving average and my new naked put looks likely to be assigned, I might fall prey to fear again and wait longer. Basically, I’ll have to see how next week plays out and then I’ll decide.

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