I have two legs of TLT September covered puts and decided I needed to roll some of them today. I meant to do this earlier, but have been focused on my work in client accounts more than my personal trading.
While TLT was trading at $140.00, I bought to close five TLT September $132 puts for $0.06 and paid $30.81 including $0.81 in commission. I turned around as soon as this order hit and while TLT was trading at $141.05, I sold to open five TLT October $136 covered puts for $1.25 each and received $623.17 after commission.
The September $132 covered puts have been cheap for a while and I regret not making the time to roll them earlier. I brought in $338.18 originally and after closing them today for $30.81, I have a realized gain of $307.37. However, I also paid out $129.07 at the beginning of August in dividends for the 500 shares I’m short. That leaves me with an actual gain of $307.37. The good news is that TLT dropped $2.26 since I sold these September puts, so I made another $1,130 that goes towards reducing my paper loss on these shares.
I decided to push my strike higher this time because I needed a better return than only $307.37. My small gain on the options is nice, but it’ll take me a long time to catch up on my losses in $300 increments. By shortening my time horizon and raising my strike, I have a better annualized gain on the options while still leaving a lot of room for profit on the shares falling.
If I had more room on margin and was still fully invested with other stocks and ETFs, I wouldn’t mind these little gains as “gravy”, but I’m not. By pushing for better premiums at higher strikes, I’m situated in a place to make more than 5-6% annualized on my trades.
I do run the risk of being assigned my short shares at a much higher price than I’d like to exit, but I don’t think we’re going to see a complete collapse in TLT as much as I used to think. Now, I expect TLT to move closer to $135 this year, but probably not much lower. I’m spacing out my TLT covered put strikes and expirations to keep my account nimble if I need to rebalance into lower strikes with some puts as I let other puts be assigned.
I have three more TLT covered puts set to expire in September and I’m considering rolling them out to November. If I had caught TLT while it was lower this morning, I might have pulled the trigger, but now that it’s up over $140.10 as I write this, I’ve decided to give it another few days.