As I mentioned the other day, I reached my limit for selling naked calls on TLT. So, I had to close some of my current short calls to open up margin. While TLT was trading at $122.54, I bought to close 10 TLT October $125 naked calls for $0.19 and paid $196.07 including $6.07 in commission. I brought in $1,013.89 when I sold these calls a month ago. Buying them back today gave me a realized gain of $817.82.
I could’ve waited to let these calls expire worthless in a week and a half, but I wanted to sell new December calls while the premiums were elevated. I was away from my office when my first order hit, so TLT was able to fall $0.50 between my orders trading and I missed out on a few bucks. While TLT was trading at $122.04, I sold 10 TLT December $125 naked calls for $1.46 each and received $1,453.89 after paying $6.11 in commission.
I might have been able to do better on the net intake if I had made the trade a few days ago, but I’m not really sure since I didn’t log what each premium was trading for then. The October calls’ theta (time value) has been dropping quicker than the December calls’ theta has been falling (theta declines quicker as expiration gets closer). Both premiums have fallen simply because the price of TLT has fallen and I didn’t want to wait it out any longer to miss a good opportunity. That opportunity was to take a profit of more than $800 while raising my strike by a dollar and adding nine weeks of duration during which time I expect TLT to remain volatile with a downward bias. Adding a higher premium than I sold the last two times was a bonus since I raised my strike. The higher premium wasn’t just a gift. I’m accepting more risk by selling more than two months away. That’s technically the reason for the higher premium, but I think I’m safer having more time on my side for the interest rates to drop by the middle of December.