Last month, my margin balance forced me to buy back 600 of my short TLT shares for a loss and then IB wouldn’t let me sell puts to cover my remaining shorts. TLT has fallen more since then, so I decided to test the waters again now that those trades have long since settled. I started with a small trade to see how it would affect my margin balance. While TLT was trading at $128.46, I sold three TLT May $125 puts for $1.42 and received $424.75 in premiums after paying $1.25 in commission. As expected, my current maintenance margin only rose slightly and I was fine. The number that matters, what IB calls the Special Memorandum Account, actually rose.
I decided to test the other side of the option table and while TLT was trading at $128.46 still, I sold three TLT May $134 calls for $0.82 each and received $244.75 after paying $1.25 in commission. I sold these three calls so far out of the money because I wanted their strike to be above the $133 strikes I own (long). My margin balance only changed slightly again and my Special Memorandum Account improved more.
Knowing that I wouldn’t sling my account back into a margin call, I came back to the May puts again. While TLT was trading at $128.42, I sold seven TLT May $125 puts for $1.42 again and received $991.08 after paying $2.92 in commission. This second put trade gave me 10 total puts on 1,300 shares short. So, I’d still like to see TLT fall below $125. If TLT falls below $127, I might simply sell another three puts to lock in some more income.
I was planning to sell the April puts and calls for quicker time value erosion, but the May options offered a much better premium when I broke down the price to a weekly basis for an apples-to-apples comparison. The overall goal was to make more than the expected $325 in dividends I’ll have to pay out on my 1,300 shares short in April and May. I exceeded that target by a good measure with $1,660.59 in new premiums for the day. The difference covers the $471.96 I had to pay out earlier this month for the March dividend and gives me a little more room for profit too.
I want to see how my overall margin numbers move over the next few days before I make another trade on TLT. My Current Excess Liquidity fell a good bit today, but isn’t close to collapsing on my yet. I just want to watch to see what these new options do to affect it when TLT moves in the other direction.