Sunday, October 13, 2013

ICC Q3 Results

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.  

CCI's accounting department (i.e. me) has been busy putting together spreadsheets of q3 results for the four index covered call positions that most of this quarter's posts cover.  After running these results past our staff auditors (me again), the technical staff (yes, me again) have posted q3 results for the ICC results, Buy & Hold results and some comparisons below.

                                                      ICC                B&H
                                                Q3      YTD          YTD               Variance         % of B&H Returned
SPY                                        1.6%    12.4%        19.7%           -  7.3%                   63%
IWM                                        7.1%    13.0%        27.0%           -14.0%                   48%
QQQ                                       2.2%      8.9 %       21.8%           -12.9%                   40%
EEM                                        5.9%   - 3.4%       - 6.9%           + 3.5%                    49%
TLT(10 yr Bond)                                                   -8.3%  
Some Observations
  • The stock market has basically continued its one way trip higher this quarter.  That is the best environment for B&H, and where a covered call  strategy would expect to be the biggest drag on performance.  These results seem to support that assumption.
  • Also as expected, the covered call approach continues to under perform the stock market when the market is up and over perform the stock market when the market is down.
  • The combined performance of the four etf covered calls (7.7% ytd) approximates the return of a 60/40 stock/bond portfolio represented by 60% SPY/40% TLT (7.6%ytd).
  • FYI, YTD performance for an etf offering a covered call strategy for the S&P 500(PBP) is up 5.4%. That is substantially less than the ICC SPY position (up 12.4%).  I'm still not sure what exactly is causing that difference, but I think it must have something to do with how the covered calls are managed.  It certainly does appear that investors should be aware that all covered call strategies are not exactly the same
  • Lastly, the results of the covered call strategy as a percentage of the B&H strategy are shown in the final column. As a general statement, it seems the covered call strategy is achieving 50ish% of the stock market return. Obviously that means a less volatile ride over the long term.  . 

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