I’m already short 10 TLT September $124 calls that are in the money, but when I saw TLT trade into the upper $128s, I figured the timing was right to add to my short position. I’m not aggressive enough to add to the same strike, but figured more naked calls out of the money could be a smart move.
While TLT was trading at $127.73, I sold 10 TLT September $132 naked calls for $1.15 each and received $1,145.73 after paying $4.27 in commission. I could’ve made more if I reacted quicker this morning, but was happy to get my trade in just before 10:00 while TLT was still much higher than it ended the day. When I first placed my order, I tried for the $133 strike, but TLT was already sliding from its highs and I had to drop my strike by a dollar to get the fat premium I wanted.
My logic is that I might be assigned the TLT September $124 calls and it’ll be nice to have an extra realized gain $1,145.73 to cut into my paper losses while I remain short the first lot. If TLT surprises me and runs above $133 and I have to take an assignment on another 1,000 shares, my average cost per share will be much higher and will make it even easier to work the trade for a profit. If I’m assigned the first lot of 1,000 shares at $124 and the $132 calls expire worthless, I’ll plan to sell covered puts out of the money and will sell more naked calls out of the money again.
With my first lot of naked calls $2.34 in the money as of the close of trading, I wouldn’t be surprised if I was forced into an early assignment at the end of the month, just before TLT goes ex-dividend. There’s a lot of time between now and then, so TLT could be $5 or more in either direction before that becomes an opportunity for the call owner. TLT swung in a $3.10 range today and could do the same for a while.
What I liked seeing was that while the S&P 500 fell 77 points and the Dow dropped 583, TLT finished a tad bit lower instead of holding onto its gains. That’s bullish signal for stocks and a bearish signal for bonds in my opinion. These next few days will surely be wild as everything starts to settle down before long.