On the heels of my success trading TLT naked calls that I closed out last month, I came back for more today. A limit order I entered a few days ago triggered as TLT pushed higher in late morning trading. While TLT was trading at $143.77, I sold three TLT December $147 naked calls for $2.45 each and received $733.71 after paying $1.29 in commission.
This trade is very similar to the TLT calls I sold in August, except I used a strike that is $2 higher this time. I received $0.03 less and have an extra week for the contracts to play out before expiration. The other difference is that I already entered my order to exit the trade if the premiums drop to $1.10 by the end of October. While I’d love to take a full profit, I’ll be very happy to make more than $400 within a month if we get a dip on TLT in the near-term. If I can’t exit this month, I’ll have to decide if I want to risk an assignment in November or December or if I want to exit with a smaller profit – assuming I have a profit to take at that point.
The August intraday highs of $148.60 and $148.89 should act as a ceiling if TLT even gets that high again this year. This time last year, TLT was trading around $116 and has been rolling higher since then, other than a few consolidation periods. The surge that began two months ago, pushed TLT well above its trading channel before it fell back in line with the previous trend again. It could push back up to the previous highs or even hit $150 before cooling off again, but I think there is a high probability that we’ll see the ETF below $140 again this year. Another dip like that should give me the opportunity to take a decent profit. If I’m wrong, I’ll only be short 300 shares on an assignment and can weather the short-term loss while waiting for bond yields to rise again.