Milestone Oct31

40 days into this strategy, and this milestone is taking some measurements at the end of the month, October 31st.  A few things have taken place, one completely expected, and the others, more significant, and somewhat unexpected.

SGOV – The cash alternative

First of all, the body of the dragon, the slow and steady production of cash has behaved as we thought it would. The SGOV component made up of purely government bonds produced $757 in slow and steady income for October, and $1387 over the 40 days. This represents a 0.69% return, which would track to be about about 6.29% annually. I had been expecting about 4% return on this, so I think this is abnormal. It’s likely we might see this percentage dwindle  over time due to falling interest rates. We have to remember, we don’t expect much return on this part because it’s basically only being used as a parking space for cash, and so anything it produces is better than 0 – 0.5% which is what cash normally can produce.

SPLG – Original S&P500 Tool

During the month of October, I began to realize that the options for SPLG have some inflexible aspects to them. First of all, I noticed that future target dates are not as readily available as I originally thought. And secondly, I noticed that pricing on the options was sometimes not as competitive as I expected during surges and dips. Since I still want this entire strategy to be based on the S&P500 companies, I looked for other funds that might have more liquidity, more action, and therefore more competitive pricing on the options. I saw several, all of which have high stock prices making them a bit more difficult to wield, but the trade offs with flexibility on dates and better pricing offset that too much to ignore.

SPY – SPDR S&P 500 ETF

“The trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index, with the weight of each stock in the portfolio substantially corresponding to the weight of such stock in the index.”

Ok, this is exactly what I was looking for when I chose SPLG, but with this instrument, I will have to only be trading 1 or 2 options on specific dates rather than grouping bunches of 4 or 8, and in multiple positions. That sounds like simplifying, and it is, however I will have to learn how to pick the price targets a little more prudently to avoid being on the wrong side of the price as time goes by. 

Transition – Over the last few weeks of October, I simply closed any SPLG positions, and immediately opened a position in SPY that reflected more or less the same risk, the same premium, but with a smaller option count at each point in time. 

The last 40 Days charted appear below. I have my short PUT positions (bullish) in purple, and the short CALL positions (bearish) in cyan. These are just the active and open positions for November. The future positions are setup, but we can look at them on another post.