Wednesday, June 9, 2010

SLV trade idea

This is very similar to something I did about 18 months ago. This is going to kind of be a set it and forget it trade. I'll obviously follow the price of SLV but this isn't a short-term trade. I am basically buying an 18/20 bull call spread and financing it buy selling a strangle. I'm very comfortable owning silver at $13, and I'm not worried about my risk to the upside because I would close the trade out should SLV pass the short call at $20. It looks like I can put the trade on for close to break even, which is the goal. Maintenance margin will diminish as time goes on. Looks like initial margin is about $2400. Max return is $2 if SLV is above $20, so max return for a 10 lot would be $2000/2400 = 83%. I think this return is worth the risk so I'm planning on putting this trade on soon.

SLV is essentially in a long-term range here with the majority of the action over the last year between 15.5/18.5. Backing out to a two year chart below it looks like the long uptrending channel is now in a sideways consolidation range. 


  1. So your Max gain would be at 20 at about $2,060. How far past 20 are you willing to let this trade go before you stop out? Would you take delivery on the short puts if SLV crashed for some reason?

  2. Should we pass the $20 strike, closing the trade would depend on how much time was left and what my view at that time is. I am willing to take possession at $13 so I would not be looking to close this trade out for a loss should it move down from here.

  3. Two months after the initiation of this trade the price of SLV is essentially flat and in a range. So today I closed the 18/20 call portion of this trade for a .07 gain before commissions, .04 or $40 after. I am going to leave the short strangle on for longer though. I initially sold to open the 13/25 strangle at .65, it's currently at .35 but I'm willing to stay short here. I'm still willing to own at $13 and $25 is a big stretch from here.