Closed Out Some Risk

I sold a vertical call spread on TLT (20-year Treasury ETF) for a $0.28 net premium less than a month ago and closed it today, a month before it was set to expire.  While TLT was trading at $116.54, I bought to close 10 TLT June $127 calls for $0.07 and sold to close 10 TLT June $129 calls.  I paid $31.25 for the $0.03 net premium including only $1.25 in commission (thanks to a commission rebate on the calls I sold).  This gave me a realized gain of $240.98.  I didn’t see a good reason to leave the small risk in place in case the position turned on me.

My remaining upside potential was only $30.00 from here, which amounts to 0.75% upside on the money I had at risk.  Even annualized, that’s barely over 8%.  The goal was to take a full profit, but since I was able to pocket 88.5% of my maximum profit in less than half of the planned time, it was an easy decision.  Now, I’m in a position that allows me to watch TLT and wait for the next opportunity to make the same trade again.  I don’t know if that opportunity will come anytime soon.  It’s possible that TLT has seen its highs for multiple years as yields start to rise.

I used the same logic on my next trade.  While SSO was trading at $83.31, I bought to close two SSO June $72 naked puts for $0.26 each and paid $53.16 including $1.16 in commission.  I finished this trade with a realized gain of $167.30.  Letting this position expire worthless in four and a half weeks would have netted an extra 0.35% for me on the money at risk.  I don’t expect SSO to fall 13.92% over the next few weeks and move this contract in-the-money, but for only missing out on a 3.9% annualized return, the risk of a black swan event wasn’t worth that little gain I could’ve earned.

Since I’ve cleaned up my account some, I’m ready to find some new reward that’s worth the risk.  I’m going to review some different possibilities and will probably enter a couple of limit orders that will hit on the next small dip in prices.  While I’m throwing around limit orders, I might add some trailing stops to current options I have in place that have nice profits so far.

I’m down to only two contracts left for June expiration.  It’s interesting – cutting my exposure this early has not been my standard method over the years (until recently), but I’ve been burned enough to have finally learned to lock in profits while I can.