The only March option I had remaining coming into today was one TLT March $125 naked call. The other nine, out of my initial 10 March calls, were assigned at the end of February, but I was left with this single contract to deal with. After the nine TLT March $125 calls were assigned at the end of February, I was forced to buy back 600 of my shares due to a margin call. I bought these calls for a loss and it made me realize I could be caught by the wash rule if I wasn’t careful.
The wash rule applies to buying a stock again within 30 days of selling for a loss. The same rule would apply in reverse too. If I bought a short for a loss, I would face the wash rule if I sold more shares within 30 days. If I had let my one remaining call be assigned, I would’ve been shorting another 100 shares. So, I took the less bad trade and bought my call back. While TLT was trading at $129.43, I bought to close one TLT March $125 call for $4.45 and paid $445.71 including $0.71 in commission. This trade gave me a realized loss of $286.14 on the contract.
My trade hit while TLT was $0.08 below the high of the day, which means I timed it poorly. I could’ve exited a few days ago for a smaller loss, but I decided to take the chance to see if TLT would fall further as the final days on the contract ticked away. The decision cost me a little more than $100, but with the trend that TLT was following, I think it was the right decision based on the information I had. I still think the chart looks like TLT has more room to the downside than to the upside, even in the near-term.
After today’s closing trade, I have the following TLT exposure:
- Short 1,300 shares
- Short 10 May $126 calls
- Long 20 May $133 calls
- Short 10 June $125 calls
- Long 20 June $134 calls
10 of my long May calls cover 1,000 of my short shares and 3 of my long June calls cover the remaining 300 of my short shares. This leaves me with seven long calls not protecting anything. I might sell seven more calls to create the short side of a vertical spread. I could use the extra cash to help cover the cost of the dividends I have to pay out. I’d also like to sell new puts if I have the room on margin available. I won’t try until Monday. TLT can move in either direction and I’ll benefit from either higher call prices or higher put prices.