My plan was to sell five TLT naked calls at the same $170 strike I used in August. Instead, I sold three calls a few weeks ago and waited to see how TLT would behave for a few more weeks.
TLT appears to be trending lower again, but still needs to break through support around $163 to confirm the longer-term move is lower. I was thinking about selling two more October, or even November, $170 calls, but I saw the $165 strike calls were price double the $170s. While TLT was trading at $163.82, down $0.84 on the day, I sold one TLT October $165 naked call for $3.25 and received $324.33 after paying $0.67 in commission.
I decided the risk of being short another block of 100 shares at $165 would raise my average short price a little, but wouldn’t push my margin risk too far compared to the same potential gain I could’ve made if I had sold two more $170 calls for $1.60 each. I’d almost like to be assigned this one call so my $149 average price comes up to $151.67, not counting the premiums I’ve received. I might sell one more at the $165 strike if TLT trades below $163 for more than two days.
This single option contract adds to my TLT position of 500 shares short, five covered puts at the October $155 strike (trading at $1.30 now), and three October $170 naked calls (trading at $1.53 now). I have a paper loss of $259 on my $155 puts and a paper gain of $858 on my $170 calls. Both legs have plenty of time value remaining and both are out of the money.
SOURCE: My Trader’s Journal – Read entire story here.