Today looked like it was going to continue how it ended yesterday – with the bull market regaining its footing. That’s not how it played out and it didn’t take long to see the tide was turning. I did nothing in my account for a while, waiting to see how the day would settle in. By early afternoon, I had seen stocks fall to break even and bonds climb to break even. I thought there might be a little more motion in the day, but didn’t expect the complete reversal we ended up with since both stocks and bonds had flattened for a couple of hours.
My TLT September $124 naked calls had traded as low as $0.13 this morning and were only up $0.05 – 0.10 when I placed my limit order about $0.15 above the current trading range. (They ended the day closer to $0.38/0.39.) I figured we might see a jump again for TLT either tomorrow or Friday and entered a limit order that would last until mid-next week. While TLT was trading at $121.67, I sold 10 TLT October $125 naked calls for $1.02 each and received $1,013.89 after paying $6.11 in commission.
When I first started considering placing the limit order at the $125 strike instead of at the $127 strike or higher, I was thinking my September $124 calls were expiring this coming Friday. I clued in before I made the trade that I had another week to go after this week, but had convinced myself that the risk was low for TLT to regain that much ground that quickly. I still expect it to work out for me, but might have pushed for a higher premium if I had known the order was going to hit today.
Within an hour of placing my trade, TLT spiked about a half percent and I was able to sell at the high trade of the day. I don’t know if I could’ve done better, because the order hit while I was away from my desk. I do know that getting the high trade of the day is a good thing when you are the seller.
This type of order is what I love about being fully invested. I can place limit orders that won’t matter if they aren’t triggered – meaning I can be patient. If they are triggered, I tend to get one of the better trades of the day, assuming we aren’t part of a flash crash. I’ve thought about entering some limit orders for other equities, far out of the money at premiums well above the ask, but after buying back my hedges last week, I’m in deep enough for now. If we move more than 3-4% in either direction by the end of next week, I might go ahead and move on another stock option trade.