To the Silver Well One More Time

  • SumoMe

There has been a lot going on in the silver market in 2016, as I have written about here, here, here, here, here , here, here and here.

And of course, um, here.

In my last silver post I introduced a quirky strategy that buys a closer-term (September) at the money call option and sells a longer-term (January 2017) far-out-of-the-money call option.  Since that time silver has advanced nicely and the trade has generated a decent profit.

One of the great advantages associated with trading options is the potential to “adjust” trades in order to lock in a profit.  So let’s look at one potential example based on the original trade of:

*Buying 11 SLV September 15 calls

*Selling 11 SLV January 20 calls

The current status of this trade appears in Figure 1 (click to enlarge)1Figure 1 – Original SLV Long Sep 15 / Short Jan 20 position (Courtesy www.OptionsAnalysis.com)

Now let’s consider the following adjustments:

*Sell 11 SLV September 15 calls

*Buy 10 SLV January 20 calls

*Buy 2 SLV January 18 calls

The new position appears in Figures 2 and 3 (click to enlarge)2Figure 2 – Adjusted SLV trade (Courtesy www.OptionsAnalysis.com)

(click to enlarge)3Figure 3 – Adjusted SLV trade risk curves (Courtesy www.OptionsAnalysis.com)

The net effect is:

*The trade for up to 7 months (January 2017 expiration rather than just through September expiration)

*The worst case scenario is a profit of $196

*The trade (by virtue of being long 2 18 strike price calls and short only 1 20 strike price call) still enjoys unlimited profit potential is silver decides to go crazy on the upside.

Is this a good idea?  Only time will tell.

Jay Kaeppel

 

 

Now let’s consider the following adjustments:

 

Sell 11 SLV September 15 calls

Buy 10 SLV January 20 calls

Buy 2 SLV January 18 calls

 

The new position appears in Figures 2 and 3:

 

Figure 2

 

Figure 3

 

The net effect is:

 

The trade for up to 7 months (January 2017 expiration)

The worst case scenario is a profit of $196

The trade (by virtue of being long 2 18 strike price calls and short only 1 20 strike price call) still enjoys unlimited profit potential is silver decides  to go crazy on the upside.

 

Jay Kaeppel

 

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