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Rolled TLT Covered Puts Lower

Tuesday, October 18, 2016 14:03
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I didn’t time my trade well today, but I think it was the right trade to make for a longer-term outlook on TLT. While TLT was trading at $131.92, I bought 5 TLT October $135 puts and sold 5 December $131 puts for a net premium of $1.53 paid per combination. I paid $772.12, including $7.12 in commission, for all 10 contracts (five pairs). Annoyingly, the five combinations hit in five separate trades with the new December covered puts selling for $2.53 to $2.63, with the offsetting October puts trading for $4.06 to $4.16

I should’ve made this trade sooner once it was clear that TLT was on a clear path lower, but I was worried it would follow the same pattern of the past few months of only coming down slightly before reversing again. By the afternoon, TLT had come back as high as $132.88 before closing close to its high. I think I would’ve save roughly $0.50 per combination if I had timed it perfectly, but it could’ve gone further in the other direction and cost me more than the $250 I missed out on.

On the bright side, I still have five TLT October $133 covered puts and three TLT November $136 covered puts. They lost more value during the push higher in the afternoon and I didn’t miss out on that gain from being short the options. The October $133 puts still have $0.65 in time value, so I’m trying to wait until Friday to roll them. The November puts are far enough out on the calendar that I want to wait to see how the election plays out before rolling them.

A lot is in play with bonds still, so I’m going to continue to make my moves slowly. At least for now, I have strikes on both sides of the current price and some that are almost directly at the money. I was tempted to let the puts be assigned and start my exit from TLT, but I have enough losses on the books for this year and want to push some to next year as I try to regain more of my losses as TLT falls deeper.


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