Monthly Returns - May 2009

Sunday, May 31, 2009

Returns -- Through May 2009

The month of May was quite interesting for both the market and the CCIP. It was the third month that the CCIP has been in existence, and was also the first month that the CCIP lagged its benchmark (SPY), though only by less than 1%. One would normally assume that during a period of relatively flat movement in the overall market, the CCIP would have performed well, because the general rationale of a covered call portfolio is that it will recieve income even when the market moves sideways. Unfortunately, due to the relatively late expiration of June calls, as well as the high volatility of the positions in the portfolio, this was not the case. Based on current market values, if all of the positions in the portfolio end in the money at expiration, the porfolio will increase another 5% in value.

The portfolio continues however to beat the market since its inception (by about 12%). The chart below presents the monthly performance of the CCIP for May, as well as the performance of the portfolio since inception.

Portfolio Results

The 2009 Since Inception results are as follows:

1. Since Inception Results

CCIP Absolute Return (March 7 through May 31, 2009) = 44.33%

Benchmark S&P 500 (SPY) Absolute Return (March 7 through April 30, 2009) = 32.34%

The CCIP has outperformed the S&P 500 benchmark by a total of 11.99%

June 2009 Next Steps

The current strategy for establishing calls in June for July expiration has yet to be determined. This is mostly due to the fact that there are still 3 weeks left until June expiration, and a lot can happen in the meantime. As GM is likely to file for bankruptcty tomorrow, it will be interesting to see how the market reacts, especially considering that in my opinion it has been pretty obvious for the past two months that it was going to happen. I think that it is most likely already priced into the market.

Earnings season is essentially over at this point, and so there aren't really any unforeseen news events on the horizon besides the normal US data, such as housing, GDP, retail sales etc. Although the North Korea situation could pose an issue to the markets short-term I believe its just the usual posturing, though I wont make this a political blog.

Positions in the CCIP may be rolled up and out depending on what happens in the next three weeks, but this will be noted on the blog. Additionally, I may add further cash-scured put positions with July expirations in order to maximize potential profit.

The strategy for establishing covered calls positions after June expiration will be as follows, and is similar to the rationale for establishing June calls earlier this month, based on the closing price of the S&P 500 on June expiration, June 19, 2009:

If S&P 500 is between 750 and 850, we have most likely recieved bad news on the economic front and aare moving towards retesting lows, and thus should establish calls 2.5-5% in the money

If S&P 500 is between 850 and 950, we have most likely solidified a new bottom, and should sell at the money calls between -2.5% and 2.5% away from current price

If S&P 500 is above 950, we have most likely had consistent good news and should sell out of the money calls at least 2.5% out of the money