Taking a loss is never fun, but I should’ve done it sooner maybe. My ratio call spread on TLT set to expire in May didn’t quite go as planned. While TLT was trading at $128.43 this afternoon, I bought to close 10 TLT May $126 calls for $2.85 each and sold to close 20 TLT May $133 calls for $0.25 each. I paid $2,372.38 including $22.38 in commission to dump all 30 contracts.
I brought in $54.52 in February and ended with a realized loss of $2,317.86. That loss comes even with TLT falling $3.19 between my opening and closing trades. My plan was for TLT to fall below $126 by expiration. I could’ve made a decent profit if I hadn’t used such a low strike to sell, but I had no idea TLT would stay elevated this long.
While the ETF could still fall another $2.43 in three weeks, I didn’t want to have to pay the dividend after tomorrow and have an early assignment that would force my hand anyway due to a margin call (again). The time value on the short shares was roughly equal to the expected dividend payment, so I would’ve been banking on further weakness in TLT more than I needed to with the rest of my exposure already at risk. I still have plenty of upside if TLT shifts further to the downside.
I still have 1,300 shares of TLT I’m short, 10 TLT May $125 puts (that I’d love to see assigned), three TLT May $135 naked calls, and a ratio spread for June expiration with 10 $125 calls short and 20 $134 calls long. I think I’ll close the June spread soon and cut more upside risk. Since the June calls have almost the same time value remaining in my short and long calls, I’m actually losing every day TLT doesn’t drop since I have double the long calls. I plan to sell new out of the money naked calls or a wide call spread once I exit the June calls spread.
Even with today’s realized loss, I expect to finish this series of trades with a profit. When I include the original calls that were assigned, the puts and calls still in play, and some more trades I plan to make, I should be good. That is, if TLT falls below $125 this year or at least doesn’t push above $130 and stay there.