I’m tracking a position of 500 shares with a cost basis of 129.46 and five July 22 142 calls shorted against the stock last week for 2.00. If TLT did not top at least for the short-term on Wednesday, when it came within nine cents of a major Hidden Pivot target at 143.53, it will likely do so with a last-gasp feint to the 145.24 target shown. The difference between the two targets is the result of using the lowermost point ‘A’ rather than A1 (see inset). If a final pop to 145.24 does occur, ideally we would want to roll our covered write to a higher strike. This could get complicated, however, and the trade would be negated if the last-gasp feint higher doesn’t occur. Instead, assuming you hold the position noted above, I’ll suggest simply buying ten August 5 134 puts on the opening with a market order. Check before the opening, however, since I may revise this strategy, depending on how T-Bond future have traded overnight. My concern is that we not get raped using a market order to buy the puts, but it is the only way to ensure that we don’t get shut out of the trade because we’ve used a limit order. _______ UPDATE (July 14, 12:16 a.m. EDT): Do nothing for now, since Wednesday’s gap-up rally has left shorts on the hook for a squeeze that could hit 142.73 if the midpoint pivot at 141.83 is exceeded. (4-minute bars, A=139.90 on 7/12 at 4:00 p.m.) _______ UPDATE (July 14, 7:02 p.m.): A long squeeze is what actually occurred, in the form of a gap-down opening that added to the squirrelly behavior of this vehicle. I’m not keen on rolling our covered write into August, at least not yet, because the calls we are short are still too rich. I may change my mind depending on how things go on Friday, so stay tuned for updates if you care. _______ UPDATE (July 15, 1:16 p.m.): Bid 0.16 for the remainder of the session to cover the July 22 142 calls shorted against stock for 2.00. Once July 22 142 calls are covered, short an equal number of Jul 29 138.50 calls at-the-market. They are currently 1.51 bid. _______ UPDATE (1:52 p.m.): I haven’t heard from any subscribers, but since this was effectively a market order, I’ll consider it done @ 1.31, the worst possible price based on current bid/asked spreads. Covering for 0.16 the July 22 calls that we’d shorted at 2.00 has effectively lowered the cost basis for our TLT shares by 1.84, to 127.62. _______ UPDATE (July 22, 2:50 p.m. EDT): During an ‘impromptu session online earlier this morning, I advised rolling our covered write into August, as follows: buy five 5 July 29 138.50 calls to close and sell five August 5 137.00 calls for a credit of around 1.25. Please report any fills in the chat room.
