Options Expiration – October 2020

I expected the final monthly options expiration before the election to provide some volatility and we got a little, but not as much as I thought we might get. My only concern for this account today was how TLT behaved.

My October options finished well out of the money. My five TLT October $155 covered puts expired worthless along with my one TLT October $165 naked call and my three TLT October $170 naked calls. My covered puts gave me a realized gain of $222.41 after I deduct the short dividends payments of $176 I made in September and October from the $398.41 I received in premiums. I made a realized gain of $1,319.02 from my three $170 strike naked calls and an additional realized gain of $324.33 for my one $165 strike naked calls. The net total gain for my TLT October options is $1,865.76, which I consider pretty good for two months of time value. Not counting any other activity in my account, these trades would annualize out to a gain of around 11.2% if I could produce the same results all year and made no other trades with my cash on hand.

My bigger focus for today was selling new options. TLT began by moving higher again and I thought I might have missed my opportunity to sell new covered puts on my 500 shares at an inflated price. Luckily for me, TLT lost its momentum quickly and the share price dropped. I missed the low, but while TLT was trading at $161.45, I sold five TLT December $152 covered puts for $1.16 each and received $576.31 after paying $3.69 in commission.

TLT has three ex-dividend dates before expiration, November 2, December 1, and December 17. Each is for $0.183 per share. Based on the 500 shares I’m short, I’ll pay $274.50 in dividends, which will cut my gains on these new puts to $301.81. My original plan was to sell puts at the $149 strike I was assigned my shares, but in August, TLT was trading too high for the $149 puts to cover my short dividend payments. This month, I could’ve used the $149 puts, but decided to push for a little more of a gain based on my expectation that TLT won’t fall that far. I could see the June 5 intraday low of $153.17 being tested and maybe the multiple March lows around $152.15 being tested, but I don’t think we’ll see TLT below $152 before the December expiration. If I’m wrong, I’ll gain nearly $5,000 from the current price and my premiums. Also, I plan to sell more naked calls, but not today. I want to see if we get another little push higher as fear mounts in the days leading up to the election. I might only sell one or two to begin with and then add more when I think the dust is settling.

A lot can change over the next two and half months. I want to have some cash available for a correction in stocks and/or another drop in yields.  If everything mellows out, at least I’ve had a good run so far this year and won’t be upset at being up 10% during a pandemic.