Another Fortuitous Adjustment for SLV

  • SumoMe

In this article dated 1/13/16 I highlighted a bullish position using options on SLV.

In this article dated 2/9/16 I adjusted the original position in order to lock in a profit, retain upside potential and extend the length of the time available for SLV to make a major move.

Things have gone pretty well. But most recently (here and here) I wrote about some potential reasons to be less than bullish about the prospects for silver –at least through late June.

So this raises the question: What to do with our SLV bullish option position?

(See also Where NOT to Invest, Er, Soon  (Part 1))

Adjusting SLV One More Time

The current position is displayed in Figures 1 and 2.

1Figure 1 – Current SLV Open Position (Courtesy 2 – Risk Curves and status for current SLV Open Position (Courtesy

At the moment:

*The open profit is +$2,954

*The maximum profit potential is +$8,014

*The minimum profit is +$1,014

In other words, the trade could gain another $5,050 or it could give back $1,940 of the current open profit.

One choice would be to simply close the position and take the profit. But there are two factors that lead me to go a different direction:

1) Silver is “on the move” – and historically precious metals possess the potential to surprise people with just how far they can run in either direction

2) Because I trade options, it is possible to improve the existing position

The Adjustment

The adjustment goes like this:

*Sell 10 Jan2017 SLV 15 calls

*Buy 10 Jan2017 SLV 22 calls

*Sell 9 Jan2017 SLV 17 calls

*Buy 9 Jan2017 SLV 24 calls

Among options geeks – er, sorry, I mean options “traders” – this is typically referred to as “rolling up”, and we are exiting a position at lower strike prices and trading new options with higher strike prices.

The net effect of this adjustment appears Figure 3 and 4.3Figure 3 – New SLV position after adjustment (Courtesy

4Figure 4 – New risk curves for adjusted SLV position (Courtesy

The net effect is this:

*The days left until expiration remains unchanged at 253

*The open profit drops from $2,954 to $2,900 due to bid/ask spreads

*The maximum profit rises from $8,014 to $8,257 (an increase of $243)

*The minimum profit rises from $1,014 to $1,955 (an increase of $941)

In sum:

*We still have 8 months left until expiration just in case silver decides to go crazy to the upside.

*We increased our profit potential by almost $250

*We locked in another almost $950 of profit.

Not a bad day’s work

Jay Kaeppel

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