I picked a good day to roll my options, but could’ve timed it better. That’s the story of this series of TLT trades I’ve been working since last year. Then again, as long as TLT is dropping, I can’t be too upset. My September TLT options had gotten cheap enough to exit and figured I should go for more premiums two months out rather than try to sit and wait out the next seven trading days (including today) to make another $43 from time value erosion.
While TLT was trading at $139.12, I bought to close three TLT September $136 covered puts for $0.14 each and paid $43.09 including $1.09 in commission. I thought briefly about waiting to see if the opening slide for TLT would continue, but I’ve been burned on that misjudgment some recently, so I opted to pull the trigger right away. While TLT was trading at $139.19, I sold to open three TLT November $136 covered puts for $1.96 each and received $586.90 after paying $1.10 in commission. TLT is trading at $137.58 as I write this and I’m down $194 on my new covered puts, so it would’ve been a good day to wait for my second trade. Even with the paper loss on the new puts, I’m still up $1,725 for the day thanks to the near $2 drop in TLT.
Technically, this wasn’t a calendar spread since I made the trades in separate orders, but the end result is the same thing. I still have 5 TLT October $133 covered puts and 5 TLT October $136 covered puts in place. I don’t think TLT will fall below $135 by October expiration and I’ll be able to roll both October legs early. If TLT does fall that much that quickly, I’ll have to decide if I want to take a loss on the options or on the shares.
The trend lines I drew for TLT shows that it’s trading near the bottom of is trading channel and will probably rise some from today’s sell-off. The line of lower highs started on July 29 and has been more reliable than the trend line of lower lows that has broken more than a few times, but still shows somewhat of a trend since July 14’s intraday low. The unbroken trend line of lower lows only goes back to August 16. To the downside, the real line to watch will be the intraday low from July 21, which marks the lowest intraday trade at $136.98 since June 24. If TLT falls below $136.98, it could be a strong signal that the bull case is over for a while as even more sell trades are triggered on the break in technical support.