Saturday, October 30, 2010

Returns -- Through October 2010

1. October 2010 Year-to-Date Results:

As shown in the table below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the Russell 3000 benchmark by 6.39 percentage points (+7.46-1.07%) so far in 2010:

CCAP Absolute Return (Jan 1st through October 31st, 2010) = +1.07%

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through October 31st, 2010) = +7.46%

2. Prior Years Results:
The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved for 2007, 2008, and 2009 compared with the Russell 3000 benchmark results were as follows:

As a reminder, the Covered Calls Advisor Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all positions in the CCAP are also held in the personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

The Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined:
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100.

If you have any comments or questions, please feel free to submit them -- they are always welcomed. Click the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site.

Regards and Godspeed,


  1. When will the CCAP at least consider the possibility of selling and rolling weekly options?

    The very simple program would consist of selling either ATM calls or 1 strike ATM calls and rolling on the subsequent Friday.

    To the extent that the CCAP has screened the fundamentals of the company, the incremental returns above transaction costs could easily exceed .5% per week (26%/year).

    A simple rule governing when to let the position be called away (and when to roll for incremental credits) could be backtested.

    The CBOE provides a list of equity options trading weeklies right now, and that list is likely to expand given the success of weekly options in general.

    As an initial suggestion, THE CCA might take a look at Ford (F), which, based on extrinsic value of the current "ATM" calls for the current week, and the extrinsic value on the last trading day of the prior week, looks to approach a "harvest" of extrinsic value equal to approximately 1% of the stock value.

    When the extrinsic value is approaching 1% of the stock value when the VIX is trading below 20, one can imagine that with a rising VIX or a VIX above 23, the extrinsic value that could be harvested should be proportionally greater.

    If one is seeking to establish long term exposure to some fundamentally sound companies, the ability to reduce the basis by up to and exceeding 1% PER WEEK suggests an important tool in an investor's arsenal.

    Not all brokerages (including Schwab) are offering weeklies, however. And like the trading of options in general, Weekly options offer a magnified return as a function of risk.

    Would be interested in the CCA's thoughts on weeklies.


  2. Jeff,
    Thanks for sharing your returns. Can you pl let me know why you choose Russell 3K as opposed to S&P like everyone else? I apologize if this has been covered already.

  3. The S&P 500 includes only large cap stocks. The Russell 3000 is a much broader benchmark since it includes large cap, mid cap, and small cap stocks.

  4. As you noted, Schwab does not yet offer trading in weeklies. I'm a Schwab customer and have been told that they will be adding that option (excuse the pun) in the near future. I also haven't studied weeklies thoroughly enough yet to know whether or not I will trade them when that time arises, although my gut feeling is that I probably will use them, but probably to a very limited extent initially. I would then need to feel very comfortable with their benefits (over and above the monthlies) before expanding my participation with them in a significant manner.