TLT ETF Trade Setup
We are opening a September
expiration month TLT bull put spread
TLT closed at $125.07 on Thursday (44 days to the September expiration)
TLT is priced BELOW its current 14-day EMA (see TLT chart down below)
TLT is trading BELOW its 20-day Bollinger Band SMA (see TLT chart)
TLT is priced BELOW its 50-day simple moving average (see TLT chart)
TLT is ABOVE its 200-day simple moving average (see TLT chart)
Relative Strength Indicator (RSI) is bearish (See TLT chart)
Moving Average Convergence/Divergence (MACD) is bearish (See TLT chart)
30 day Historical Volatility is 12.99%, Implied Volatility is 14.96% - both numbers are near the lower level of their 52-week range which is considered longer term bullish
We want the TLT put spread to generate a minimum .50 net credit AND we prefer an 80% probability that the short put contracts will expire worthless and we get to keep most of the sold premium. The spread in the tables below complies with our trading rules for initiating the September expiration month option series TLT bull put spread (based on Thursday's closing prices). The suggestion is to submit an order to purchase/sell the option strikes prices below. Please confirm the correct option symbols with your broker.
Premium Credit $.55
Total Option Premium Received $1,100 (Excludes commissions and fees)
Maximum Risk $6,900
Margin Requirement $8,000
20 contracts traded on each leg (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade; this will impact Total Premium Received, Maximum Risk amount, and Margin Required)
As with initiating the trade, the decision process for exiting our TLT put spread position will be simple:
Anytime the market maker is willing to accept a limit price of less than .05 on one of our short strikes, buy back all the short contracts and sell the long positions on the same spread. However, if it is a few days prior to the expiration date, we may be able to let the contracts expire for the maximum gain.
If our short strike is penetrated (closing price below the short put) AND the delta rises to .65 we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself and remove the sense of urgency. If our short strike has been violated and there is no price reversal, we cut our losses and live to fight another day.
If prices gap up tomorrow the put spread may not be available as published and unless the gap is filled we will hold off on the trade. Conversely if prices drop sharply then we will probably initiate the put spread at lower strike prices with a similar risk profile as described above.
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.