Tracking Results

I’d like to think that investing in stocks is not really very akin to betting on horses.

I’d like to think that.

But really, the only way to know is to track your results.

While I’ve been using spreadsheets to do so for years, going all the way back to VisiCalc. I’ve never been very sophisticated in the manner that I track positions.

All I really want to know is how well each position performed relative to the default action, which for me, has always been the S&P 500.

Back in the days of “Option to Profit” I used to update spreadsheets for subscribers daily, but eventually went to weekly when it became pretty clear that no one was looking at the details of the trades.

That’s what they were paying me for, I suppose.

I also kept and still do, summaries of all of the trades in individual positions. Those can be found by clicking on the “Results” tab and then looking for an individual stock.

Starting today, I’ve added a very simple graphic that will be updated nihtly and am calling it the “Scorecard.”

Unlike the old weekly summary sheets of Option to Profit, there won’t be 60 stock lots to follow at any one time. By the time the portfolio matures, I expect to have 10-15 stocks and anticipate one or two new positions each month, with hopefully one of those maturing into a LEAP position each month.

Instead, the bare bones information will be summarized, including the “Relative ROI (%)” and the “Theoretical ROI (%).”

The Scorecard makes use of color coding in order that the end user can easily distinguish between open and closed positions. Additionally, color coding is utilized to indicate uncovered positions, as well as activity for the week, which may include outright purchases of shares, option premiums or dividend accumulation.

Those are the qualitative issues at hand.

The quantitative issues are relatively straightforward.

At this point, all I want to track is my share cost, my accumulated premiums and dividends and how the S&P 500 has been performing during the holding period for each position.

Just as the daily closing prices of positions may change and just as premiums and dividends may accumulate and change, so too, will the ROI calculations.

With a portfolio transitioning to longer term holdings, I don’t care too much about short term price gyrations, except as they may impact some new positions that only had short term options sold upon them and that may be at risk for becoming uncovered.

For those wondering, the Theoretical ROI (%) is based upon the strike price of any outstanding short positions. If none, then the strike price of the option nearest to the cost of the underlying shares will be used.

For positions that have been closed, the comparative S&P 500 level will be frozen in time, while all open positions will continually be compared to the week’s closing S&P 500 level.

Since everyone’s portfolio will be different, not only in the stocks included, but also in the relative amounts of each position, there is no attempt to “average” the returns, nor do they take into account trading costs, nor taxes.

To be totally fair in comparing results to the S&P 500, there should also be an adjustment made for the yield on the S&P 500, which has historically been about 2% each year. The Scorecard doesn’t include that adjustment, but in general, when and if I write about returns, I tend to work an estimate of that adjustment into the comparisons.

Definitions

Relative ROI (%)

Relative ROI (%) is the difference between the ROI (Return on Investment) of the underlying investment and the change in the S&P 500 for that same time period.

The ROI (%) is (Current Share Price – Cost per Share + Accumulated net premiums and dividends) divided by Cost per share

It is then compared to the S&P 500 performance.

The difference, is the “Relative ROI (%), which by convention is positive if there is superior performance of the investment as compared to the S&P 500.

Once a position is closed, it’s ROI (%) will still be given in relative terms, but it’s absolute ROI (%) will also be indicated in the Theoretical ROI (%) column.

Theoretical ROI (%)

The Theoretical ROI (%) is the anticipated ROI in the event that shares are assigned at the strike price of the current outstanding short call contract. In the event that a position is not covered by the sale of a short contract, the nearest strike level above the cost of shares is used.

As premiums and dividends may accumulate, the Theoretical ROI (%) will vary, as will it with daily price fluctuation.

Closed positions will also be listed under this column, but the color code will indicate that those gains (or losses) have been realized and are no longer theoretical.

At present, the Theoretical ROI (%) is given in absolute and not in relative terms. At some future iteration, an additional column may be added to also provide the relative performance, as compared to the S&P 500.

Additionally, while I have never been a fan or annualizing results, especially with short term trades, as the portfolio moves to a longer term, there will be greater validity to presenting such data.