Options Expiration – July 2015

I only had options on TLT left to expire today after rolling my July FEZ and SPY options yesterday.  Both of the legs of my 10 TLT July $121/124 vertical call spread expired worthless and I logged a realized gain of $638.60 from the difference in the premiums I took in and paid out in mid-June.  Since TLT didn’t make it above $121, I was never in jeopardy of being assigned the short calls.  This lack of upward movement for TLT also meant that I didn’t need my hedge at $124.  I’m still glad I had the hedge in place to keep me from worrying when TLT pushed as high as $120.56 last week.

I wanted to continue to sell TLT calls each month, but with the prices hanging below $120 still, I didn’t like the risks of another vertical spread and the August premiums weren’t rich enough for the strikes I was considering.  I could see TLT push back towards $124 as it did in late May, so using a short strike of $120 to $122 could face an assignment.  At the same time, while I think I’d have to hedge a low short strike, I don’t expect TLT to shoot above $125 in the near-term, which means a hedge at $124-125 might be a waste again.  Instead, I decided to sell naked calls again and had to go out to September to get the premiums I wanted.

While TLT was trading at $118.44, I sold 10 TLT September $124 naked calls for $0.92 each and received $915.76 after paying $4.24 in commission.  I thought about making this trade yesterday, but wanted to see how the 20-year Treasury ETF would open this morning.  It’s been on steady push higher for a few days and I thought it would find resistance at the 50-day moving average.  I waited until it looked like TLT was stalling under its 50-day moving average and then pulled the trigger.  A few minutes later, TLT continued its ascent through its 50-day moving average.  The delta on this contract is only around 23.0, so each dime in upward movement isn’t costing me much at all, but I could’ve done better.

I opted not to wait on my trade in case we had a quick reversal at the 50-day moving average.  I figured if TLT continues to rise, I could sell another leg of short calls in the upper $120s in a few weeks or even late next month.  I’m not nervous about being assigned TLT calls at $124 because I expect the ETF to be back in the $115-116 well before the end of the year.  I’d almost like another option assignment on these calls so I could make more on the way down again.  That said, I could use the same logic to target a lower strike, but I don’t need to take such a big risk when I’m selling naked calls.  I’ll be happy to get an extra $900+ every other month if I can do it with somewhat reduce risk, especially since I still consider these TLT trades “gravy” on top of my other positions.