I’ve been waiting to sell January naked calls on TLT until after I closed out my November calls. Finally, at the opening bell, while TLT was trading at $119.48, my long-standing limit order hit and I bought to close 10 TLT November $125 naked calls for $0.10 and paid $104.22 including $4.22 in commission. I could’ve bought these calls for $0.04 later in the morning, but I didn’t think to change my limit order pre-market and somebody got a deal on the other side. I accomplished my goal though and made a great profit as today’s closing trade gave me a realized gain of $1,141.52.
I’m trying to stay on the path of selling 10 TLT calls per month, always two months out. This plan leaves me with two lots of calls, one at the closest monthly expiration and the second at the next month out. After I sell new calls, I enter a limit order at a dime to close them out, good-til-cancelled. Once the closing order hits, I sell new calls and repeat the process.
Just because that’s the plan doesn’t mean I have stuck to it each month. Some months, my limit order to close the position hits and I don’t think it’s a good time to sell naked calls on TLT. Today, even with TLT close to its two-month low, I sold new naked calls. While TLT was trading at $118.91, I sold to open 10 TLT January $123 naked calls for $0.97 each and received $965.75 after paying $4.25 in commission.
The $123 strike is the lowest I’ve sold naked calls on, but it was more than $4 out of the money when I made the trade and the probability of a rate hike in December is increasing every week. It’s not a lock that TLT will fall on a quarter point interest rate hike (if the Fed even hikes in December), but I don’t expect TLT to move above $125. TLT hasn’t closed above $125 since August and I think it’s getting late in the cycle to see long lasting drops in interest rates (resulting in spikes for TLT). Worst case, I’m wrong and TLT runs above $124.96 (my cost if I go short the shares). I don’t expect it to stay elevated too long and I’ll ride it out by selling covered puts again if I’m assigned the calls. I’d almost rather see TLT run higher some so I can sell new calls at a better premium.