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2021 Week 4 results

The last week of January 2021 is over and it was a hectic week. It was a week that woke up many investors from the lethargy of easy gains. As Danny DeVito says in Other Peoples money: “Easy come, easy go”. The previous three weeks were the “easy come”, the last week was “easy go”.

A lot has happened last week. Some online brokers halted GME trading, and the most exposed broker, Robinhood, made the uneducated bunch of 17 years old WSB boys mad, and they decided to sue Robinhood because their friend’s uncle said that they may have a good chance. No one bothered to see why Robinhood, Interactive Brokers, TD Ameritrade, or Tasty Works actually did it. A reason no longer applies in the stock market. One may ask when it ever had?

Besides the daily GME broadcasting from new millionaires the markets started being nervous. Was it a Robinhood trading halt that spilled over into the regular markets? Were other greedy investors wanting to jump on the late bandwagon and started selling everything to make their own millions too? One can only speculate. The reality is that the markets went to a selling pressured spree. Monday and Tuesday of the last week were good. Wednesday… all went nuts.
 

S&P 500 chart
 

On Thursday it all looked like a dip but dip buyers failed to step in and buy the dip. They probably went to buy GME which skyrocketed another 150% as soon as Robinhood secured the funds to meet the required cash deposits with their clearinghouse and renewed GME trading. The angry mob at WSB calmed down and resumed their HOLD or buy more cheering. It will be interesting to see how many end up holding the bag cheering themselves into more holding.

S&P 500 lost -4.6% this week and VIX jumped to 37.5 which was last seen in September 2020 (as a reminder, the market sold off by 10.6% that month).
 

This craziness had an impact on our trading. As the markets got into a frenzy and later this week into a selloff, brokers raised the margin requirements, and I got into a “cash squeeze.” I had saved cash in my ICSHsavings account” ETF but it showed up as not enough to meet all my collateral obligations.

A great example was a strangle against BB (the infamous Blackberry). When I opened the trade the margin requirements were only $150 per contract. Piece of cake. Well, when this frenzy with GME, AMC, NOK, and BB started the brokers (TW as well) suspended margins for these stocks so suddenly, out of blue, I had to come up with an additional $2,500 in collateral. With other options contracts and their inflated volatility (vega), I had more margin obligations to come up with. And I suddenly was short on cash. Another example was my very recent Boeing (BA) strangle. When I opened the trade, I needed a $2.4k margin, later, I need $3.9k…

So I had to liquidate my ICSH fund to raise capital but I also had to sell some shares in MO. That infuriated me a lot. Fortunately, some of my options contracts expired worthless today so, on Monday, I will start re-establishing my MO and ICSH positions.

Lesson: I need to hold more money in cash for situations like this. My goal was to have 20% in cash reserves. I was under-capitalized on this goal, I only had 7% saved. I might increase the reserves to 25% and make sure to be always fully capitalized (save the required cash) when the markets are at ATH.
 

This had an impact on our Net-Liq which went down. It didn’t go down because we lost money, not at all. We made more money than before, but it went down due to increased volatility, larger margin requirements, and lower stock holdings valuation when the markets sold off. Since I expect selling to continue next week, the Net-liq may go lower.

 

But now, let’s jump to our trading results:

 

Account Value: $25,278.13 – $789.07 – 3.03%
Options Premiums Received: $1,994.00
January 2021 Options: $4,209.00 +16.65%
Options Premiums YTD: $4,209.00 +16.65%
Dividends Received: $11.46
January 2021 Dividends: $53.04
Dividends YTD: $53.04
Portfolio Yield: 3.70%
Portfolio Dividend Growth: 5.91%
2021 Portfolio Value Goal: $42,344.06 59.70%

 

Last week we received $additional $1,994.00 in premiums trading options against our holdings and shares we want to own making January 2021 a good month on options income, closing with a good $4,209.00 options income. That is 16.65% monthly ROI. Most of that income was however swallowed by increased margin requirements and it didn’t get reflected in our net-liq. I assume, when the market craziness ends, not only our Net-Liq will increase, but also our buying power (BP) will go up significantly.

Even with this market frenzy, our account is up by 22.87% YTD.

I only regret selling Altria (MO) shares to release margin (not all of them though). But as I mentioned above, some of my options expired this Friday, which has released additional buying power, and on Monday, I will buy MO back. And since I expect more selling, I might even buy cheaper. Long live the wash sale rule!
 

TW Account Net-Liq
 

TW Account holdings
 

The table above shows our current holdings and gains on those holdings. Adjusted columns indicate how options help to boost (or ruin) our stock holdings appreciation, or in other words, lowering the cost basis. Without options, our holdings would be up 6.01% with options, our holdings are up 10.36% (from inception on 4/1/2019). The SPX is up 28.40% since inception. Our stock holdings do not beat the market. We beat the market because of trading options and generating additional income. The market lost -1.45% YTD, our portfolio stock holdings grew by 3.38% (note this includes stock holdings adjusted by options trading, not the entire portfolio).
 

TW Account holdings Growth YTD
 

TW Options Income week 4
 

TW Options Annual Income week 4
 

TW Received vs Projected Dividends week 4
 

January 2021 went well. Even though the end of the month sold off, our portfolio is still up nicely and I expect it to grow further. I still will strive to be purchasing dividend aristocrats as our main goal in 2021. I will be purchasing them in a manner to create a weekly dividend income. And I will keep trading options around these positions as well as around the stocks I want to own in the future.
 

As of today, I am in an accumulation mode accumulating Altria (MO). My next target will be accumulating Aflac (AFL), and Abbvie (ABBV). After that I will proceed to other stocks as per the chart I posted in my previous article.
 

I also want to expose our portfolio to some growth stocks in the new technologies and industries such as electric vehicles, nanotechnologies, fintech industry, cannabis, and renewable and clean energy. I will be purchasing individual stocks as well as ETFs investing in these industries. That’s why you may see me buying stocks like NIO, NNDM, SNOW, or ETFs such as MSOS, YLCO, or IDRV.





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