Treasury bonds recovered today after plummeting on Wednesday as yields on the 10-year note traded above 2% yesterday morning as investors digested reports on retail sales as well as import and export prices. Gold sank on Thursday driven by a surge in the U.S. dollar as the euro weakened on negative economic news from Europe. Also, various news outlets reported billionaire investors George Soros and Louis Moore Bacon are among those who cut their stakes in gold in the last quarter as prices dropped the most in more than eight years. Prices appear to be holding up in after hours trading. February options expire tomorrow and we need to be prepared to exit our positions prior to the close of trading tomorrow.
TLT Position Update ----------------------------------------------------------------
TLT closed at $116.84 on Thursday â€“ the February position is approx. $1,400 in the black
The January 9th Couch Potato set up a February expiration TLT bull put spread
We prefer to let put spread worthless for an approx. $1,600 gain. However, if the TLT ETF sinks to $116 tomorrow we will buy back the short $116 strike put contracts to avoid the risk of assignment. (see tables below)
TLT ETF Trade Setup
We are opening a March expiration month TLT bull put spread
The TLT put spread should 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 table below complies with our trading rules for initiating the March 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.
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 a lower strike prices with a similar risk profile as described above.
Premium Credit $.63
Total Option Premium Received $1,250 (Excludes commissions and fees)
Maximum Risk $8,750
Margin Requirement $10,000
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)
GLD Position Update -----------------------------------------------------------------
GLD closed at $158.35 on Thursday â€“ the February position is approx. $1,500 in the black
The January 15th Couch Potato published a February expiration GLD call spread
The call spread should expire worthless for an approx. $1,100 gain. However, if the GLD ETF somehow surges above $166 tomorrow the best bet is to play it safe and buy back the short $167 strike call contracts. (see tables below)
The January 15th Couch Potato published a February expiration GLD put spread
We prefer to let put spread expire worthless for an approx. $1,000 gain. However, if GLD is not priced above today's close (approx. $158.35) prior to the close of trading tomorrow (4:00 pm EST) we will buy back the short $158 strike put contracts to avoid the risk of assignment. (see tables below) Even if the price closes above a short put position, after-hour trades (the 15 minutes after normal close) can drop the price below.
As mentioned above, February options expire tomorrow and we will try to let the TLT and GLD contracts expire worthless. However, it is important to keep close tabs on our TLT and GLD short puts in case a price drop necessitates executing closing trades to avoid being assigned.
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.