I had no options expire today, but did roll one of my legs of TLT covered puts. I also considered selling covered calls on my long (MDY, IWM, and DIS) positions finally, but couldn’t pull the trigger. The upside potential is just too small for what I want right now. I think my brain is a little skewed by my over-allocation in TLT and am having a hard time focusing on the “base hits” I need to keep working on. Then again, I’ve been smart not to sell covered calls on IWM and MDY as they’ve both had strong runs since their lows at the end of June. I would’ve done well by selling covered calls on DIS already and might get to it next week.
I plan to roll more of my TLT covered puts, but for now I only started with one leg. While TLT was trading at $138.65, I bought to close my five TLT September $131 covered puts for $0.13 each and paid $67.65 including $2.65 in commission. I immediately turned around and sold five TLT October $133 covered puts for $0.94 each and received $468.17 after paying $1.83 in commission (net received was $400.52 for rolling the puts).
I decided to buy the September $131 puts because they were so cheap that I didn’t have enough time value left to cover the dividends I’ll have to pay in a week and a half. I opted to roll out and up to the October $133 strike because the premiums will more than cover the dividends I will have to pay out over the next two months. I don’t expect TLT to fall below $133 before October expiration. If TLT does fall that quickly, I’ll have roughly $3,200 more than I have now by gaining on my short shares, plus the premiums, minus dividends paid by me. Of course, I need to buy my shares at a lower price than $133 to make up for my paper losses sustained so far, but it just doesn’t seem like TLT is on the verge of falling off of a cliff. I could see a retreat back down to $137 very easily and even a drop to $135, but we’ll have to get a big catalyst to send TLT into the lower $130s over the next two months.
A few special words from Fed Chair Yellen at the upcoming Jackson Hole conference could be the trigger or it could be a rate hike in September that does it. Even if one of those catalysts hits, I’m not certain prices will fall too far with rates in Europe and Japan at such low levels right now. If I can continue to sell out of the money covered puts on TLT and not be assigned too soon, I could manage to come out of this trade with a good profit still. For now, I’m just focused on cutting losses.