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 N: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.
Figure 1 – Updated SLV March 1 call trade (Courtesy www.OptionsAnalysis.com)
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.
Figure 2 – Adjusted SLV trade (Courtesy www.OptionsAnalysis.com)
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. But now at least you know that such a thing is possible.