I hate those days when I wake up to see a stock or ETF I’m short has jumped $2+ premarket. Today was another one of those days for TLT. I knew the risk of another margin call was close and had my plan of action in place. Since I had 300 shares of IWM I was long, I figured I could sell some of my shares and still have good upside left if small-caps rally into the second half of the year. I sold 100 shares of IWM for $113.5601 and received $11,354.76 after paying $1.25 in commission. I’ll have a realized loss of $973.51 on these shares from the original cost minus put premiums.
The trade got me out of the margin call and then I decided to pad my margin maintenance cushion a little better. While TLT was trading at $142.26, I sold five TLT September $132 covered puts for $0.68 each and received $338.18 after paying $1.82 in commission. I still think TLT is destined to fall hard before the end of the year, so I only targeted enough premiums to cover the dividends and interest I’ll be paying each month and maybe a few bucks more.
It didn’t take long for TLT to climb even higher and pull me close to another margin call, so instead of waiting, I closed my July covered puts to set me up for even more September covered puts. While TLT was trading at $142.64, I bought to close eight TLT July $127 covered puts for $0.02 each and paid $15.29 after receiving a $0.71 commission rebate on my trade. This trade gave me a realized gain of $1,141.38.
Once my July covered puts were out of my account, I felt comfortable selling more puts. I didn’t want to sell enough to cover all of my 1,300 short shares in case today was a top for TLT (I can dream). I opted to aim for a dollar lower strike on this second lot of five options to give me a little more profit potential on a TLT drop before September expiration. While TLT was trading at $142.52, I sold five TLT September $131 covered puts for $0.54 each and received $268.18 after paying $1.82 in commission.
I’ll probably sell three more covered puts within the next week or two, but really want to wait for prices to come off of today’s peak a bit more. These 10 covered puts will cover my short interest and dividend payments almost completely for the next two months and by selling three more covered puts I’ll be above break-even and can continue to wait out the insanely high prices for the bond ETF.
I was tempted to cut my position some or to buy a call spread, but am doing my best to stay patient and let the trade play itself out. TLT has never stayed above $130 for this long and will break eventually. The trick will be if I can hang on long enough to ride it back down. I’d love to ride the short trade back into the lower $120s, but could see me exiting in the upper $120s if I’m not caught out on the above covered puts before then.
I had $1,050.24 in excess liquidity at the end of today and will face another margin call on further weakness in stocks and strength in bonds. I might sell a covered call on my MDY shares this week. I tried to today, but IB wouldn’t let me since I was on margin while I tried. I didn’t try later in the day, so I’m still considering it again.