In this article dated 1/13/16 I highlighted a bullish position using options on iShares Silver (NYSE:SLV).
In this article dated 2/9/16 I adjusted the original position in order to lock in a profit, retain upside potential and extend the length of the time available for SLV to make a major move.
Things have gone pretty well. But most recently, I wrote about some potential reasons to be less than bullish about the prospects for silver –at least through late June.
So this raises the question: What to do with our SLV bullish option position?
Adjusting SLV One More Time
The current position is displayed in Figures 1 and 2.
Figure 1 – Current SLV Open Position (Courtesy www.OptionsAnalysis.com)
Figure 2 – Risk Curves and status for current SLV Open Position (Courtesy www.OptionsAnalysis.com)
At the moment:
*The open profit is +$2,954
*The maximum profit potential is +$8,014
*The minimum profit is +$1,014
In other words, the trade could gain another $5,050 or it could give back $1,940 of the current open profit.
One choice would be to simply close the position and take the profit. But there are two factors that lead me to go a different direction:
1) Silver is “on the move” – and historically precious metals possess the potential to surprise people with just how far they can run in either direction
2) Because I trade options, it is possible to improve the existing position
The Adjustment
The adjustment goes like this:
*Sell 10 Jan2017 SLV 15 calls
*Buy 10 Jan2017 SLV 22 calls
*Sell 9 Jan2017 SLV 17 calls
*Buy 9 Jan2017 SLV 24 calls
Among options geeks – er, sorry, I mean options “traders” – this is typically referred to as “rolling up”, and we are exiting a position at lower strike prices and trading new options with higher strike prices.
The net effect of this adjustment appears Figure 3 and 4.
Figure 3 – New SLV position after adjustment (Courtesy www.OptionsAnalysis.com)
Figure 4 – New risk curves for adjusted SLV position (Courtesy www.OptionsAnalysis.com)
The net effect is this:
*The days left until expiration remains unchanged at 253
*The open profit drops from $2,954 to $2,900 due to bid/ask spreads
*The maximum profit rises from $8,014 to $8,257 (an increase of $243)
*The minimum profit rises from $1,014 to $1,955 (an increase of $941)
In sum:
*We still have 8 months left until expiration just in case silver decides to go crazy to the upside.
*We increased our profit potential by almost $250
*We locked in another almost $950 of profit.
Not a bad day’s work