SLV and SPY

I took my loss on SLV today closed out 1000 shares. I haven't done the math but it's roughly $1800 in the shitter. If silver goes back up I've got a big call spread on still from $15-$20. I needed to raise the cash because I've got a big committment to buy on XLE. I sold naked $45 puts a few weeks ago when it was at $53, we're under $45 now so I've got to be prepared to own that and start selling calls against it. Other than that my only holdings are a covered call on F at $5 that expires in Sep. I've got Jan 2011 call spreads on MET and JPM that I intend to just let ride. I had been lightening up over the last month after the breadth of the rally got light.

After I sold the SLV I bought 5 SPY $98 puts. Those are in-the-money by $10, I paid $10.50 so .50 time premium. Every 10 points in the S&P translates in to $1 on the SPY. So let's do the math and I'll show you why I prefer this play. If the S&P moves from 880 to 870, the SPY would roughly move from $88 to $87, that's a 1.13% move down. My $98 strike puts would move from $10.50 to $11.50 for a 9.5% move. So rather than short the market or use a 2X or 3X ETF, I prefer to just buy in-the-money puts and in this case would get leverage of roughly (9.5%/1.13%) = 8.4x

I did this 18 times on the DIA in September and October, picking up 10% profit on each trade. Some of those trades lasted a few hours, the average length was 3 days. But that's because we were falling so fast. Anyway, just wanted to share with you what I'm doing. A 10 point move in the S&P happens often so just know that those can be 10% gains if you happen to call the right direction.