I’ve been looking forward to today’s expiration for a while. Today is the day I finally get to close my TLT shorts and realize the gain that’s been building up. I’ve taken some of the gains along the way through puts and calls that have expired worthless or that I rolled for a profit. It’s interesting that TLT is up more than 2% today and I’m happy about it. It’s not anywhere close to pulling my covered puts out of the money. I want TLT higher so I can short it again from a higher price. If my remaining 10 TLT June $128 naked calls aren’t assigned next month, I hope that TLT is closer to $128 so I can rewrite new contracts for a hefty premium. But, I’m getting ahead of myself.
Today, my seven TLT May $128 covered puts will be assigned and I’ll buy back my 700 short shares of TLT at $128.00. My five TLT May $134 naked calls will expire worthless and I’ll take full profit on them. I’ll end this series of TLT trades with a realized gain of $4,708.46. These were my trades and payments for dividends and interest that went into the series that started on December 16, 2014, a day shy of five months ago.
- 12/16/14: Call spread = $468.18
- 2/2/15: Assigned seven of my short calls at $130 = (-91,000)
- 2/4 -2/6/15: I paid dividend and interest = ($195.31)
- 2/27/15: First covered puts = $942.03
- 3/4 – 3/6/15: I paid dividend and interest = ($211.12)
- 3/18/15: Second covered puts = $872.03
- 3/20/15: 3 naked calls = $312.99
- 4/6 + 4/8/15: I paid dividend and interest = ($240.53)
- 4/16/15: Rolled seven covered puts for fourth month = $851.31 net
- 4/17/15: Five naked calls = $512.88
- 5/15/15: Assigned seven covered puts at $128: ($89,600)
I didn’t include the naked calls I’m short for June in this total because I’ll count them in my next series of trades if I’m assigned the shares and go short again. I look at the trades above as what I had in place working together. I sold the new naked calls when I had a strong belief I’d get out of the short shares today. It worked as planned and this series has become my new favorite set of trades I have ever made. My previous favorite was on UCO. I made a good profit on UCO, but had more risk and also had to tie up cash to keep it running for a longer period. I didn’t set aside any cash to work this TLT series. That means the rest of my portfolio was still working for me and this $4,700+ profit was just gravy for my account.
I’d love it if I could earn another $4,000 on TLT from now through the end of 2015. I think it’s a reasonable goal. I have $840 possible from my June naked calls and if I can repeatedly sell naked calls for an average of about $500 per month, I’ll get there. I won’t chase TLT below $125 with naked calls, so my profits will drop considerably if/when TLT hits a weak patch again. Any trades below $125 strikes will have to include a hedge, just in case we get another big drop in bond yields.
I’m still making money outside of TLT. My two FEZ May $38 naked puts will expire worthless and I’ll take a full profit on them. I thought about rolling these earlier in the week, but was busy and didn’t feel like writing an extra post for something I felt was fine to delay until today. This morning, when FEZ was down, but up from its lows, I sold replacement puts for the May puts. While FEZ was trading at $40.38, I sold two FEZ July $40 naked puts for $1.55 each and received $308.41 after paying $1.59 in commission. I would’ve made more on these puts or used a lower strike if I had made the trade on Tuesday or Wednesday, but I might have been inclined to buy back the May puts instead of leaving them to expire worthless. The net result is probably not much different from what I would’ve ended up with a few days ago.
FEZ Naked Put Risk/Reward Breakdown
- Potential profit: $308.41
- Potential return: 4.01%, 22.65% annualized
- Breakeven price: $38.46
- Downside protection: 4.76%
- Recent high: $40.68 on 5/14/15 (yesterday)
- Cushion from recent high: 5.46%
- Expected support: $39.00 is close to where it bottomed on 5/5/15 and could offer good support on a retest. The intraday low on 3/26/15 and 4/17/15 was $38.62. That mark is just above my break-even price and close to the 100 and 200-day moving averages. I think this area will hold support longer-term.
- Position close goal/limit: I only sold two puts so I could take the assignment on weakness. I don’t think Europe is about to fall off a cliff and want to hold onto the position on a dip that goes below my strike. If assigned, I’ll only have 7.36% of my account (based on today’s account balance) allocated to international stocks and won’t be destroyed on the shares if it gets hit worse than expected. Depending on the news at the time that could bring FEZ lower, I’d consider selling more puts at lower strikes based on the idea that it’ll be higher before the end of this year.