Good morning!
Yes, Ravi, I like /SI down here BUT I also like the Dollar for another 1.5% which will likely send /SI down 3%, or about 0.50 more, which is right back to nice support at $15.70 so, for now, I'd rather wait - tempting though it may be.
Of course, while you wait, good old WPM is back on sale and I think $20 will end up holding though maybe $19 if /SI does fall back below $16. Either way, it's like buying ABX, you get great leverage and the protection of a business that makes money if Silver doesn't come back quickly.
We sold 10 2020 $22.50 puts in the LTP for $4 while we waited for a pullback (net $18.50) and they are now $4.85 and we're ready to add a bull call spread, so for the LTP, let's add 20 WPM 2020 $17.50 calls for $4.70 and sell 20 WPM 2020 $25 calls for $2.15 for net $2.55 ($5,100) and we sold the puts for $4,000 so now net $1,100 on the $15,000 spread.
In the OOP, let's add the following:
- Sell 5 WPM 2020 $20 puts for $3.30 ($1,650)
- Buy 10 WPM 2020 $17.50 calls for $4.70 ($4,700)
- Sell 10 WPM 2020 $25 calls for $2.15 ($2,150)
That's net $900 on the $7,500 spread and the margin (ordinary) is only $1,000 so a very efficient trade that will make $6,600 (733%) if all goes well and our worst case is owning 500 shares of WPM for net $18.40 and, since we can then turn around and sell 2020 $17.50 calls for $4.70, collecting a 25.5% "dividend" while we wait - there's not much fear of a downside on this one.
My biggest problem with these trades is ONLY going with 5 short puts and 10 longs but, it's only a $100,000 portfolio - we forget that because we were up to $350,000 when we closed the last one out and we were making much bigger trades but we forget what it takes to build them from scratch so - PATIENCE!
