TLT Iron Butterfly & Covered Call Walk-Thru

If you trade iron butterflies today's case study is for you. We walk through our assignment and covered call adjustment that ultimately netted a profit.
TLT Iron Butterfly & Covered Call Walk-Thru
Kirk Du Plessis
Feb 7, 2019

Assignment for some traders can be scary and cause them to freeze-up or throw in the towel. On today's podcast, we'll walk through another case study in which we got assigned on our iron butterfly position in TLT not once, but twice. Inside, I'll move slowly as we look back at each stage of the trade from the original order entry, adjustments, assignment, and, ultimately, the covered calls we sold after being assigned stock. This podcast is worth listening to twice!

Trade Overview:

  • On September 11, we sold three iron butterflies centered at the $119 strike price. 
  • We sold the $119 calls and puts, and bought options further out on either end, $127 calls and $111 puts.
  • We collected an initial premium of $247.
  • On September 18, we sold another set of three laddered entries selling the at-the-money strikes at $117 for a $229 credit. 
  • TLT dropped down from $117 to $112 as we moved closer to October expiration.
  • On October 10, we were assigned on the three $119 puts, leaving the assigned puts in the money by about $7. 
  • On October 11, we decided to hold the position as TLT was oversold and roll out the $117 iron butterfly for a $66 credit as implied volatility had risen. At this point, the $117 contracts were $5 in the money and we only took a $200 credit on the original $117 position. As TLT moved down, IV spiked, giving us the ability to roll contracts to the next month for a decent premium. We used a vertical roll order to roll out the iron butterflies at $117 in two separate orders.
  • On October 26, we created a covered call on the original 300 shares for $118.
  • On November 8, we were assigned an additional 300 shares on our $117 put options for a total of 600 shares. 
  • On November 16th, we sold another three contracts creating the covered call on the $116 options.
  • The next day, TLT started to rally and continued to rally for many weeks. 
  • On December 4th, we finally got to a place where we could exit the entire position in TLT.
  • Total credits taken in at this point were $730.
  • Also on December 4th, we sold our covered calls for a net price of $115.55.
    — Sold back the stock for $117.77 and bought back the call options.

P&L: Exiting With a Profit:


  • What looked like a terrible position ended up generating $720 across these two series of iron butterflies.
  • Even after being assigned and having to roll and deal with covered calls and long stock, the position ended up making money because our strategy remained mechanical. 
  • This is key as you get started in trading: you have to stay diligent and systematic. 
  • Simply by holding the stock, we were able to gain two rounds of dividend payments. 
  • You can't let your emotions get the best of you.
  • You can also see the video review of the trade here: TLT Double Iron Butterfly Assignment $720 Profit Case Study.

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