I mentioned my plans for this TLT trade on Friday and decided not to put it off any longer.  It’s too bad that I waited.  I missed out on some profit.  Rather than sulk, I made the trade today and am happy with a trade that starts off better than the last time I did this.  While TLT was $125.59, I sold 10 TLT December $129 call options for $0.71 and bought 10 TLT December $131 calls for $0.40.  I received $294.80 for the $0.31 spread after paying $15.20 in commission.  The last TLT call spread was two months out when I made the trade, had a short strike at $127 and only brought in $220.00.  I like having the extra cushion on top of the shorter duration.  What I had last time that I’m foregoing this time is a wider gap between the current ETF price and the short strike price.  Last time I had more than $8, but this time I have less than $3.50.

I’m not sure that TLT has reached a top yet, but with a short strike at $129, I’m not too worried about the long-term outlook on this trade.  I might end up being assigned 1,000 shares in December if the fiscal cliff talks don’t go well, but once there is a resolution, I think we’ll see TLT fall below $125 in Q1 and full expect it below $120.00 again at some point in 2013.  That’s not to say that I’d hold a short position all of the way down, but I’ll try to make more than my run over the summer.  In July, I shorted TLT at $127 and then sold covered puts at $127.  Since I’ll be starting at a higher short price this time, I’ll be more comfortable aiming for a profit on the shares too, not just the collection of premiums.  I did well on the premiums and could do better with limited downside risk by aiming for more.

If I’m not assigned any shares, my profit is very good the way I’ve made this trade.

TLT Breakdown:

  • Potential profit: $294.80
  • Upside risk: $1,705.20
  • Potential call spread return: 17.29%, 15.3% per month
  • Upside cushion: 2.86%
  • Short call delta: not sure, IB was glitchy at the time, delta is 18.7 now that TLT has climbed to $125.70
  • Position close goal/limit: Aiming for full profit and will work it like my July TLT spread where I take the assignment if it gets there.

My UCO trade was basic profit taking on the covered calls I sold last month.  While UCO was trading at $28.53, I bought to close six UCO January $35 covered calls for $0.70 each and paid $424.56, including $4.56 in commission.  That gives me a realized gain of $530.86 on the covered calls and pushes me back to a slight realized gain for the month of November.  I’ll admit, the idea of taking a profit came from looking at what I could do to maintain my streak of realized gains each month, but I wouldn’t have made this trade if I didn’t think it was a good idea.  In the past, when oil’s momentum shifts, I’ve sat back and let it play itself out.  I decided to work it differently this time.  Once I saw this morning’s gap higher in UCO, I opted to uncap my profit potential if UCO continues to rally.  This could be no more than a single day bump higher, but it actually started before today.  The base has been forming for the past couple of weeks and today looked like the culmination of some pent up demand.  $29 and $31 are both set to be further resistance and I might decide to sell new covered calls at the same expiration and strike again, but for now, I want to see what oil can do.