October as it turned out was a very volatile month. The market dropped substantially at the beginning of October then recovered with multiple price gap up days in SPX. While it was a profitable month, I did make the mistake of putting on a hedge position too early after the market started recovering. The hedge position was selling a Credit Call Spread, essentially shorting IWM. There were so many signs indicating that I should have got out after a few days (both price movement and sentiment data saying the market would keep going up), I held on to it and ended up closing it at a loss in early November. So likely we will see a negative month in the November monthly report.
Market Sectors of My Positions
My positions are skewed towards Health Care and Information Technology related stocks. This makes sense since I look for high IV opportunities for the Wheel Strategy.
October 2021 PNL
In addition to the Wheel Strategy, I started shorting VXX in this account as well. I normally only short VXX in a large margin account because I can open naked short Call easily, whereas, in a small account, I would need to short VXX with Credit Call spread, which costs more commission and is not as easy to get in and out. However, the market drop in October triggered a large spike in VIX so it was a good setup to open a VXX position even in a small account like this one.
NOTE: How I Record PNL for the Wheel Strategy
If I have got assigned for underlying stocks I would sell Covered call on them. I do not record PNL for such positions until I am able to close them.
In other words, I do not record the PNL unless the “Wheel” is completed.
Below is a brief summary of how the PNL is recorded.
Sell Put: If it expires out of the money (not assigned with a stock) or closed out early, it is recorded in the PNL. If a stock is assigned, it is not recorded.
Sell Covered Call: PNL is recorded when the Call is expired out of the money or closed out. It is also recorded when assigned and the stock is called away, or the entire Covered Call is closed out.
Win Rate for Different Spread Types
“Single” represents selling a Put or a Call contract.
Since it requires both selling Put and Call to complete the Wheel Strategy, any positions (Selling a Put or a Covered Call) that were closed with positive PNL was recorded as a “Win”.
Selling credit call spread for SPX, IWM, and VXX are recorded in the “Vertical” spread type.
|Spread Type||Win||Loss||% Win|
Thoughts for the October Report
One thing I learned this month was that never ever go against the market. The table below shows the average return of the S&P 500 over the period of about 60 years. It clearly shows the market performs well in October, November, and December.
I shouldn’t have put on a hedge knowing the market would likely move higher for the remainder of the year.
I should have ridden the market wave and don’t try to look for data that would support my decision (such as initiate a hedge when it’s totally unnecessary), and instead, digest the data in front of me and act accordingly.
I have read enough books by now knowing what I did was “confirmation bias”, and yet, it took me way too long to get out of that position. Clearly, knowing something and actually putting that knowledge into practice are two different things.
I will look for minor pullbacks for the remainder of the year and initiate positions with an expectation that the market will move higher unless the market data tells me otherwise.