TLT started to dip into negative territory this morning after running as high as $124.13 at the open (and $127.68 at yesterday’s open). Like any rally in stocks lately, any weakness in bonds tends to be met with a reversal before long. I took this opportunity to cut my losses this morning and closed my weekly TLT put spread. While TLT was trading at $122.26, I bought to close three TLT October 17 $119 puts for $0.03 and sold three TLT October 17 $120 puts for $0.10. I received $17.36 for the $0.07 net premium intake after paying $3.64 in commission.
Closing the position today brings my total realized losses for this series of trades to $243.88. TLT has fallen another $0.35 since my trade went through, but it looks like I would’ve only been able to exit for $0.07 still. Seeing weakness in TLT is something that’s become rare these days and will be interesting to see if I should’ve waited until tomorrow to exit my trade. I’m not worried about missing this single week’s potential profit. If the TLT bull run is actually over now, I’ll have plenty of time to profit on the way down as TLT heads back towards $115-116.
I was asked in a comment why I haven’t sold call spreads and managed them more actively. I’m responding in this post because I recognize that many people would miss a reply in the comment for such a good question. First, I view the put spreads and call spreads as having the same risk reward, so using calls versus puts doesn’t really matter to me, unless I’m willing to take an assignment to go short. I’ll get to that point, but not until TLT is above $125 for more than a few minutes. As far as managing the position, I don’t have the time needed to properly adjust this trade on a regular basis. I’m pushing it as it is with these simple weekly spreads that I only buy and close once per week. I’m sure there’s a better way to trade these options, but for my needs, somewhat simple is better. I also don’t want to get into making so many adjustments that commissions will eat up my profits with so little money at risk. I might reduce my risk by going farther out on the calendar, but this whole series of trades is based on the belief that TLT has a limited number of upside weeks in it before having a down week. By going out farther on the calendar, I’d miss that historic benefit.