Adjusting SLV to “Lock In” Profit

  • SumoMe

In this article I highlighted an example (please note the ruse of the word “example” and the lack of the word “recommendation”) trade that involved buying March call options on ticker SLV (an ETF that tracks the price of silver bullion) based on the idea that SLV price action had formed a “multiple bottom.”

Since that time SLV has risen from $13.17 to $13.48 a share and the March 12 call option has risen from $1.34 to $1.59.  Based on an original 18-lot and a risk of $2,412, this trade has gained $450 in value, or +19.5%.  See Figure 1.

(click to enlarge)1Figure 1 – Updated SLV March 1 call trade (Courtesy

Now there is absolutely nothing wrong with holding on and “letting it ride” as there is a lot of upside potential if SLV continues to rally.  But the purpose of these examples is to teach a little bit about the possibilities available to option traders.  So let’s explore one possible “adjustment” that a trader might make here.

Adjusting to Lock In Profit and Buy More Time

So here is the adjustment:

*Sell 18 SLV March 12 strike price calls @ 1.59

*Buy 4 SLV July 13.5 strike price call @ $1.02

Executing this adjustment results in the position displayed in Figure 2.

(click to enlarge)2Figure 2 – Adjusted SLV trade (Courtesy

There is “Good News” and “Bad News” associated with this adjustment.

The Good News:

*The trade no longer risks $2,412.  In fact the worst case is now a profit of +$42 (if SLV is at or below $13.5 as of July expiration)

*The trade can be held for 4 additional months since it now holds July calls instead of March.

The Bad News:

*Profit potential is reduced dramatically because the position now holds a 4-lot instead of an 18-lot.

So is this a “good adjustment”.  Each trader needs to answer that question on their own. Bu now at least you know that such a thing is possible.

Jay Kaeppel