Dirac Portfolio Review: 29 August 2025

East Pier Lighthouse, Dun Laoghire, Dublin, Ireland

The Dirac Portfolio was launched a little over 2 months ago to try to capture possible benefits from sector rotations within the US Equity markets. As such the S&P 500 is taken as the benchmark index with SPY as the representative ETF benchmark.

To date, performance looks like this:

with an Internal Rate of Return over the (short) period of 12.4% and low (5.2%) volatility. As for the Darwin Portfolio we are not keeping up with the benchmark due to the fact that we have not been 100% fully invested over this period.

Activities/adjustments over the past month are shown below:

with the most significant move being the rotation out of XLU (Utilities) and XLI (Industrials) and into XLY (Consumer Discretionary). XLC (Communications), XLK (Technology) and SPLG (S&P Large Cap) had Call Options sold against them that were In-The-Money (ITM) at expiration, so I chose to keep the Option Premiums received when I sold the Calls and let the shares be taken away from me – however, these positions were immediately replaced and new Options sold against them.

The current Hedging situation (right hand box) looks like this:

with most of the profits (~$1,900) showing as coming from the hedges – however, this is more a bookkeeping phenomena than an indication that Options are generating big profits – I could, just as easily, have chosen to hold on to the shares that were taken away when Options were excercised and simply rolled the positions (bought back expiring Options and sold new Options expiring further out in time) – in which case most of the profits would have shown as coming from the shares held. Net effect would be the same either way – I just decided that I might gain a little in costs (less slippage and fees) by going the route that I did. Note that I am picking up $79 per day in time premium decay from the Options that I have sold and am about 50% hedged.

Checking on Rankings and Recommendations from the Kipling workbook:

we see that SPLG is still a recommended Buy with XLC, XLK and XLY as recommended Holds. Since all these are currently hedged there is no further adjustment required at this point in time. Options expiry is next week (5 Sep) for 3 of these positions.

Checking on the allocation calculation sheet:

we see that I am slightly under-allocated in XLC and SPLG so, if the market is still looking strong after the Labor Day holiday, I may add 100 more shares in SPLG to try to push the equity curve up towards the benchmark. At the present time I will stick with the 2% per asset volatility target for this portfolio.