As has been the case a few other times this year, I had no options expire today. I don’t even have any scheduled to expire next month. So, I’ll take the time to give another positions update. This is what’s in my account as of this afternoon.
IWM: 200 shares long
MDY: 200 shares long
DIS: 100 shares long
TLT: 1,300 shares short
3 TLT September $136 covered puts
5 TLT September $132 covered puts
5 TLT September $131 covered puts
I was tempted to buy back some of my covered puts today as TLT continued its price decline, but I decided to wait for it to fall below the intraday low from June 30, at $138.08. That price was the low for the week after the Brexit vote when TLT gapped higher two days in a row. I expect TLT to fall below my put strikes eventually and want to exit before I give up too much, but I’m also hesitant since I’ve been wrong about its timeline to decline for a while.
I also considered selling some covered calls on my IWM, MDY, and DIS shares, but they’ve become a sideshow in my account compared to TLT. Even if I …
The chart below shows the monthly prices for the past 10 years on TLT, an ETF that tracks the US 20-year Treasury Index, after closing the week at $143.60, on July 8, 2016.
Technical indicators are not infallible, but are popular because they provide accurate guidance in most instances, especially when multiple indicators issue the same signals, as in the TLT chart. In this chart, the easiest indicators to use are the straight trend lines shown in purple. The upper trend line of higher highs shows where TLT has met resistance to further gains in each rally since the end of 2008. July marks the fourth attempt by the ETF to push above this trend line. The first touch of a trend line is only a starting point. The second touch is a hinge that guides the trend line for future resistance points. The third touch of a trend line is often a strong telling point where failure to break through resistance can quickly lead to a powerful reversal in price, as it did in …
I still had 300 shares of TLT that I was short without any options surrounding them after selling new TLT covered puts earlier this week. When TLT spiked again today, I was close to another margin call and was thinking about taking a realized loss on some of the shares. Before I made that trade, I came up with an alternate plan.
While TLT was trading at $143.39, I sold three TLT September $136 covered puts for $1.10 each and received $328.90 after paying $1.10 in commission. One alternative was to sell some of my long shares of DIS, IWM, or MDY. I didn’t want to do that since they have momentum going now – at least today. I could also have bought to close some of my short shares of TLT and taken a big loss. I didn’t want to do that yet either, but realize that time might come soon.
I’m trying to avoid buying back my TLT shares yet because I continue to believe TLT will reverse sooner than later. I’ve been wrong for so long that I’m beginning to doubt myself, but prefer to push it a little longer. By selling covered puts with higher strikes, I’m bringing in …
I hate those days when I wake up to see a stock or ETF I’m short has jumped $2+ premarket. Today was another one of those days for TLT. I knew the risk of another margin call was close and had my plan of action in place. Since I had 300 shares of IWM I was long, I figured I could sell some of my shares and still have good upside left if small-caps rally into the second half of the year. I sold 100 shares of IWM for $113.5601 and received $11,354.76 after paying $1.25 in commission. I’ll have a realized loss of $973.51 on these shares from the original cost minus put premiums.
The trade got me out of the margin call and then I decided to pad my margin maintenance cushion a little better. While TLT was trading at $$142.26, I sold five TLT September $132 covered puts for $0.68 each and received $338.18 after paying $1.82 in commission. I still think TLT is destined to fall hard before the end of the year, so I only targeted enough premiums to cover the dividends and interest I’ll be paying each month and maybe a few bucks more.
At the halfway point of 2016, my account looks terrible. Until I started writing this post, I didn’t realize that I did not make a single trade in June. That didn’t stop me from losing a boatload of money on paper. TLT hit an all-time high and I’m still not hedged. I only have three other positions that I’m long: IWM, MDY, and DIS. Without looking back to verify, I think June was worse for me than any single month in 2008-2009. Still, I’m not panicking. I’m stressed, but fully believe TLT will fall again at some point before I have to exit. I might have to sell shares of my long positions to keep my TLT addiction working, but firmly believe this current bond bubble will bust in an ugly way and I’ll be situated to profit from it.
I ended June with a Net Liquidation Value (NLV) of $76,299.67 and a Net Asset Value (NAV) of $76,372.08 according to Interactive Brokers (IB) after finishing May with an NLV of $87,347.84. The difference in month end values gave me a loss of $11,048.17 (~12.65%) on paper for June and no realized gain or loss for the month since I had no closing trades, but I did pay $394.19 in short interest and …
I had no options expire today, so I’ll give a short account summary instead. This is what’s in my account right now:
+300 shares of IWM
+100 shares of MDY
+100 shares of DIS
-1,300 shares of TLT
-800 contracts on TLT July $127 covered puts
My account balance has been massacred by the run higher in bonds (aka drop in yields), but I’m holding tight. I’m ecstatic that I cut my TLT ratio spread position at the end of May. Even with TLT trading above my formerly long strike, I would’ve lost another $3,600 if I had held onto the combination.
It’s bad enough that my balance is down to $80,202.79 (as of 2:12 pm). I would’ve been more upset with myself if I had held on and lost more. My plan was to sell more TLT covered puts or naked calls, but when TLT shot higher, I crossed off more covered puts from my plan and decided to wait on new naked calls. However, the run higher for TLT has been so violent, I opted to keep more cash on the sidelines for now. I’m going to wait for the Brexit (British exit from the EU) next week before making …
Short-term memory can be deceiving sometimes and that’s one of the many reasons I find it important to keep a trader’s journal. If I had not looked back to see my balance at the end of April, I would’ve thought I had killed it in May. Instead, I simply came back strong from the mid-month lows, but actually lost a little over the month.
I ended May with a Net Liquidation Value (NLV) of $87,347.84 and a Net Asset Value (NAV) of $87,284.27 according to Interactive Brokers (IB) after finishing April with an NLV of $87,801.47. The difference in month end values gave me a loss of $453.63 (~0.52%) on paper for May and a realized loss for the month of $2,238.16 on five closing trades (four trades if you count my two TLT May $125 puts trades as one) and the $370.55 in short interest and dividends for my TLT short shares that I paid. Quicken reported that I have an account value of $87,329.65, a penny more than IB’s reported NAV after accounting for interest accruals of -$45.37. I could see the difference in one trade that must be a rounding difference, so I’m leaving it for now and will fix it in July if I don’t get a rounding discrepancy …
I spent some money today, $3,752.39 to be exact. As I did at the end of May, I closed out my ratio spread on TLT that included short in the money calls. TLT dropped hard at the open, down nearly a $1 and I jumped on the opportunity to get out of my short option position while I could. I didn’t want to have the short options in place as TLT went ex-dividend tomorrow since I only had $0.12-0.15 in time value remaining. The shares would’ve been assigned and I would’ve had a margin call.
While TLT was trading at $129.07, I bought to close 10 TLT June $125 calls for $4.10 each and paid $4,104.11 including $4.11 in commission. I received $9,968.26 for these calls originally, so I ended with a realized gain of $5,864.15 on this leg of my combination. The bad news is that I had two legs in this trade and the other one cost me dearly.
Nearly an hour and 20 minutes later, after watching TLT climb steadily all morning, I sold my long calls for June too. While TLT was trading at $129.85, I sold 20 TLT June $134 calls for $0.18 each and received $351.72 …
I only had two options expire today – 10 TLT May $125 covered puts and three TLT May $134 naked calls. Both legs were set to expire worthless and I planned to sell new puts and calls for July, but margin limitations didn’t agree with my plans. Since both legs were far enough out of the money, I considered them nearly impossible to be assigned after mid-day and decided to let them expire worthless. While TLT was trading at $130.13, I sold eight TLT July $127 covered puts for $1.45 each and received $1,156.67 after paying $3.33 in commission.
I tried to sell 10 puts, not just eight, but margin limitations wouldn’t let it go through. I saw that by reducing my order to eight, it would go through. However, after the order triggered, I had a margin warning (so frustrating). That made me go back in to buy back some of my May puts to appease the system. While TLT was trading at $130.10, I bought to close five TLT May $125 covered puts for $0.01 and paid $5.00 total since IB doesn’t charge commission to close options for a penny on the final day of trading.