Partially Rolled TLT Naked Calls

TLT has been trading above my naked calls strike off and on for the past couple of weeks. I thought it could be smart to remove some risk yesterday when TLT was trading above $172. I don’t think it’ll continue to trade at these levels too long, but the risk of being assigned another 500 shares started sounding less appealing as it continues to push higher.

Instead of closing the full position, I opted to partially close my exposure. While TLT was trading at $170.13, I bought to close three TLT August $170 calls for $1.95 each and paid $586.12 including $1.12 in commission. That gave me a realized gain of $18.92 with two more contracts still at play. I’d love to pocket the remaining options’ value of $390, but might not let it run until options expiration.

A few minutes later, while TLT was trading at $170.16, I sold three TLT October $170 naked calls for $4.40 each and received $1,319.02 after paying $0.98 in commission. My theory is that TLT might bounce around in this $169-172 range for a little while longer, but I don’t think it’ll be above $174.40 by October’s expiration.

After these orders went through, I entered one more TLT option limit order and waited for it to be triggered. A few hours later, when TLT dropped to $169.86, I sold five TLT October $155 puts for $0.80 and received $398.41 after paying $1.59 in commission. I refer to these as “covered puts” because they’ll cover my short shares of TLT, like a covered call covers long shares. I don’t see much realistic chance that my August $145 covered puts will come back into play, so I’m leaving them to expire worthless in two weeks. I wanted to go ahead and sell new covered puts to cover my short interest and short dividend payments I have to make each month. I raised my strike $10 to $155 since I don’t think TLT will fall more than $15 by October. If it does, I’ll gain more than $9,000 from my short position and the time value of my options. I’ll pay $265 in short dividends over the next couple of months, so these new puts more than cover that cost and give me a planned exit price. Ideally, TLT will drop back into the low $160s and allow me to sell lower strike puts for December and probably more $170 naked calls.