What’s cool is that the S&P 500 is down 32 points (1.55%) as I write this and my account is up over $1,000 for the day.
The limit order I had on my TLT December naked calls hit today. While TLT was trading at $119.97, I bought to close 10 TLT December $126 naked calls for $0.10 each and paid $104.22 including $4.22 in commission. I could look at this trade and think that I just threw away $104.22 to close a position that now seems like it doesn’t have a chance of being assigned before expiration, but I’ve learned that it’s better to remove risk when it’s cheap to do so. Sometimes the position stays out of the money and the trade was a waste, but other times the underlying equity reverses and you are burned. I’d rather waste a closing trade occasionally to avoid the rare times when I get surprised and lose big chunks of money.
TLT fell more than 3% at one point today and could recover quickly too. I don’t think it’ll make it above $126 in the next two weeks and a day, but I don’t have to worry about this lot of calls anymore if it does. Luckily (skillfully?), I sold new TLT February naked calls a few days ago and have a paper profit running on that position now. If I wasn’t comfortable placing the limit order today to close these December naked calls, I don’t think I would’ve sold the February naked calls earlier. In other words, I wouldn’t have had the $400 paper gain I have on my February calls if I didn’t set myself up to spend $104 on the December calls. I’m glad I took the risk of leaving the December calls until the contracts hit $0.10. I saved $60 compared to if I had closed the position three days ago.
TLT made it within $3.00 of my December strike at yesterday’s high, so I wondered if I made the right decision of selling my February calls at a strike $2.00 below my December strike. Today’s price action proved me right, at least for now, even if I didn’t sell the naked calls at the recent peak. I think we’ll see that today’s route in both stocks and bonds is a little overdone and we’ll recover before long. It’ll be a few weeks before I can sell my TLT January $123 strikes for a dime, but I’ll be waiting with a limit order in place to take an early profit.