TLT has been creeping towards my January naked call strike since the day after I sold this lot of calls. I waited out the peak in December when TLT hit $124.10, but decided to take a profit today and roll the position out to March at a higher strike too. While TLT was trading at $122.16, I bought to close 10 TLT January $123 naked calls for $0.75 and paid $757.92 including $7.92 in commission. Immediately after this order hit, I placed my new order and while TLT was still trading at $122.16, I sold 10 TLT March $125 naked calls for $1.60 each and received $1,595.73 after paying $4.27 in commission.
I didn’t sell this as a single diagonal calendar spread because the prices were shifting so quickly in this morning’s volatile market that I wanted to be certain that my orders hit. TLT was bouncing around enough that I didn’t want to get caught on the wrong side of a limit order and miss rolling the calls.
I brought in $965.75 when sold the January calls on November 6. So today’s buy back gave me a realized gain of $207.83. I’m really happy with that considering how high TLT traded just a few weeks ago and the fact that TLT was trading at $118.91 when I sold these calls. In other words, while I had a bearish trade in place, TLT gained $3.25 per share and I still made money. A big reason for my profit is from my lack of greed on the trade. I could’ve easily used a strike closer to the money since I thought TLT was going to stay below $120, but I was smart enough to cut my risk after it fell as much as it had.
My reasoning for getting back into a new leg of naked calls is that I still believe TLT will be lower within a few months. I could be wrong and the options could be assigned, but I’m a lot more comfortable shorting it at $126.60 (the strike plus the premium) than I was at $123 and only $0.75 in premium left.
I’d love to average $850 per month in premiums from TLT this year so I could pull in more than $10,000 from this repeated trade. Even though January didn’t work out that way for me, March could cover both (January and March) months’ premium collection if TLT stays below $125 by expiration. TLT hasn’t closed above $125 since August 24 and I’m expecting its trend of lower highs to continue.