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 iShares Silver (NYSE:SLV) September 15 calls
*Selling 11 SLV January 20 calls
The current status of this trade appears in Figure 1
Figure 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
Figure 2 – Adjusted SLV trade (Courtesy www.OptionsAnalysis.com)
Figure 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.