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Monday, November 16, 2009

ProShares Short S&P 500 ETF (SH) -- Closed

The Covered Calls Advisor Portfolio (CCAP) covered calls position in ProShares Short S&P 500 ETF (SH) was closed out today (11/16/09).

The transactions history was as follows:
10/28/09 Bought 600 SH @ $55.92
10/28/09 Sold 6 SH Nov09 $58.00 Calls @ $.65
10/29/09 Bought 300 SH @ $56.05
10/29/09 Sold 3 SH Nov09 $57.00 Calls @ $.90
11/16/09 Bought to Close 3 SH Nov09 $57.00 Calls @ $.05
11/16/09 Bought to Close 6 SH Nov09 $58.00 Calls @ $.05
11/16/09 Sold 900 SH @ $53.22

The ProShares Short S&P 500 ETF tracks the inverse of the S&P 500 index. As stated when the positions were established: "this approach was done to hedge the overall CCAP to provide a better match with the current Overall Market Meter rating (see upper right sidebar) of "Neutral", whereas the CCAP's normal 100% long equities approach tends to result in a slightly bullish posture." But the overall market has continued its bullishness, so the results from this hedge have been very disappointing. The lesson learned from this investment is to avoid trying to anticipate directional changes in the market and to invest along with the market's overall momentum, which at the present time continues to be bullish.

The overall performance results(including commissions) for the SH transactions were as follows:
Stock Purchase Cost: $50,384.90
($55.92*600+$$56.05*300+$8.95*2 commissions)

Net Profit:
(a) Options Income: +$635.35 [600*$.65 + 300*$.90 - (2*$8.95 + 9*$.75) commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$2,477.95
= [($53.22-$55.92)*600 +($53.22-$56.05)*300 - $8.95 commissions]

Total Net Profit: -$1,842.60
= (+$635.35 +$0.00 -$2,477.95)

Absolute Return = -3.7%
= -$1,842.60/$50,384.90

Annualized Return: -70.3%
= (-$1,842.60/$50,384.90)*(365/19 days)

3 comments:

  1. "The lesson learned from this investment is to avoid trying to anticipate directional changes in the market and to invest along with the market's overall momentum, which at the present time continues to be bullish."

    Wise words! I think a lot of us use CCs because we are tired of trying to guess the day-day market action and are content to go along for the ride while getting paid to do so.

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  2. Jeff,

    As I think many people would agree with your hesitation to believe the markets continued rise, why not roll the sh covered calls to December in anticipation of the correction which you foresee. I am always hesitant to do covered calls on bearish instruments but in this case it would seem like the perfect time to do covered calls on a short etf.

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  3. I have decided that I will only use SH, the inverse ETF, when both of the following criteria exist:
    1. The SPY price trend reverses from bullish to bearish (using 150-day SMA with 5% tolerance); and
    2. My primary overall market valuation indicator registers as overvalued. This measure equals Wilshire 5000 Total Market Index divided by Gross Domestic Product, and is overvalued when this ratio exceeds 0.85
    Currently, #1 above is bullish and #2=.79 [which implies the market is fairly valued (i.e. neither undervalued or overvalued) at this time].

    Jeff

    ReplyDelete