I learned a good lesson today as I messed around with TLT put spreads. When the monthly jobs’ data beat expectations, I thought TLT would drop based on the belief that it was more likely the Fed would raise rates sooner than later. At first, the market agreed with me and TLT sank as low as $116.82. As I saw my TLT put spread gaining value, I figured I’d take a full profit. I thought I’d be smart and go ahead and get my order in for next Friday as TLT bounced a little. While TLT was trading at $117.36, I sold three TLT October 10 $117 puts for $0.5667 and bought three TLT October 10 $117.50 puts for $0.81667. I paid $79.74 including $4.74 in commission for the $0.25 in net premiums.
TLT fell back to $17.11 within an hour and I was proud. I was starting to look good on both trades and then it reversed. I learned that I should’ve waited to let my first trade finish with a profit before counting on the “winnings” and making a second trade. I also learned that on a trade that is wavering between a profit and a loss, I should take the profit, even if it’s small on the final day of trading. I only sold three spreads for next Friday because I thought I was going to have a profit on my TLT spread that expired worthless today.
I waited until 3:57:33 and while TLT was trading at $117.65 (and climbing), I sold my two TLT October 3 $117.50 puts for $0.02 and received $1.92 after paying $2.08 in commission. I could see with 2:27 to go in the trading day that TLT wasn’t coming down below $17.50 and I decided getting a couple of dollars was better than none. (Now I can buy part of a beer tonight.) I ended with a realized loss of $51.24 for the full spread, including the profit from my short $117 puts that expired worthless.
I even tried another trade in the last 30 seconds. As TLT pushed above $17.70, I saw there were still an order to buy 98 contracts for $0.02. I entered an order to sell 50 contracts for $.02, knowing that commissions would eat up more than half my premium. Logic wasn’t with me. 50 contracts at $117.50 would use $587,500 of margin and IB denied my order. I cut it to 20 contracts, but didn’t get the order in until after 4:00 pm. I would’ve made another $8-9 at best, but it would’ve been fun.
I forgot that I won’t be at my desk for the final half-hour of trading next Friday, so I’ll plan to exit my new TLT spread sooner than the last couple of minutes of trading. Today marks the third week in a row that TLT has finished with a gain. I expect it to lose steam next week and give me an opportunity to exit with most of my profit in hand. If I can get out with more than the $51.24 I lost this week, I’ll be doing fine as I learn with real money.