Saturday, October 10, 2015

The Hiatus and The Correction

I’ve been away from the blog since the beginning of August…over these last two months I’ve been watching the market as carefully as ever, and I have been working on Rescue My IRA.  I simply haven’t posted due to a couple of distractions, such as the hops harvest at my farm (link here), and the ribbon cutting on the building we just delivered at my day job.  I’ll try to catch up with a couple of posts this week and then make a goal of staying up-to-date after that.

The big news in the market, of course, is the correction that began in August.  Although there have been minor downward swings since I opened this account in 2011, this was the first to really test the covered call strategy I use here in Rescue My IRA.  More volatility is forecast, but now that the markets have recovered about half of the correction, it’s a good time to assess the situation.

I read the Washington Post every weekday morning.  While their business section isn’t much, there is a little table of Dow 30 performance.  At the depths of the correction during the last week of September, fully 24 of the 30 stocks showed a negative return from the year – I figured that meant everyone, even the big guys, were showing losses…all the more reason to keep the faith.

My resolution was not to sell my shares at a loss during the correction.  I determined that continuing to hold the companies I had chosen and staying true with the covered call strategy was the best path forward.  I bought and resold options throughout this period – “buy low, sell high” – using roll-downs and roll-outs as the way to keep the account updated.

I had hoped to increase my cash reserves to around 30% by October, but the correction got in the way.  Instead, cash is around 15% of the account – I’ll continue to work on getting this number to my 30% benchmark, since a presidential election year can be highly variable and I think I could use the correction.

Yesterday, when I checked the Dow 30, the number of stocks showing a negative return had improved to 18 or so, and it is likely that after the good day Friday, a couple more are back in positive territory. 

That’s the story with Rescue My IRA as well – at the end of September, we were showing a hit of around 10%.  After the strong week we had, the account is back to its starting value for 2015 – right at breakeven.  Once again I have covered calls written against every position, and it looks like I will make my cash flow goals for October.

I follow this post with a summary of some of the roll-outs and roll-downs I executed over the last two months.  Let’s get caught up!

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