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Capital Gains Opportunity - The SLV Call Option (Part 2)

In Capital Gains Opportunity - The SLV Call Option (Part 1), I discussed the basics of options trading, reading the daily and weekly charts, and the purpose of indicators. In this post I will discuss how I will use the concepts and ideas of Part 1 to an actual trade.


Take note that I am risking REAL MONEY in this. I am willing to lose $430 of my savings and I will not go home crying to mommy if I lose the said amount.


Here are the things that I want to have in my options trade:

  • I want to buy call options that have the longest expiration date as possible because the closer an option gets to its expiry date - assuming that it didn't hit the strike price - will be the lesser in value it becomes.
  • But I want to be a little greedy and I want to have as much profit as possible
  • I want the call option's strike price to be as close as today's price as possible without getting too expensive. The closer the strike price to today's price, the more expensive it will be and vice versa. This is called intrinsic value.
I want to fulfill the three requirements above with only using the limited cash I have which is $430. I will do this by splitting my small amount into two and buying two different SLV call options.


The first position: $27 Jan 12 Call Option
I want my first position to be the primary one, the one which is the more precious to me. Since I am convinced by the Fundamental and Technical Analysis that silver will go north of $25 during the course of the year 2011, I want the expiration date of my more precious Call Option to be after December 2011. The image below shows the different kind of Call Options and Put Options that has an expiration date of January 2012:



Take note of the red rectangle in the picture because this highlighted the type of Call Option I want to buy for my first position. Even though its strike price is $27 (which is $3 away from the current price of $24), Technical and Fundamental Analysis still predicts that silver and SLV will reach (or go past) the strike price on the year 2011. With its expiration date of January 2012, SLV will have a lot of time to maneuver north. But if it fail to do so, I have an entire year to close the losing position and recover some of the money.


Entering the First Position:
Currently I am using OptionsXpress as my broker because this offers stock options on US equities.



In the image above I have done a Buy To Open order on a SLV Call Option that has a strike price of $27 and an expiration date of January 2012. Buy To Open means buying an option in order to hold it for a specific amount of time and make it open to the changes and fluctuations of the market. The current price wherein I can buy the SLV Call Option is called the Ask Price which right now is $2.91; but if I want to buy at that price I need to use a Market price which is a bad thing for me because I have to pay the broker an extra commission in order to do that. What I can afford right now is to use a Limit price which is the price above the current option value. In the image above I entered a Limit Price of $2.95, which is still affordable. This means that if the SLV Call Option I wanted to buy hits $2.95 in value, the broker will automatically buy that option for me. Take note that all I can only afford is to buy 1 unit of this particular Call Option.

*** UPDATE ***
The $27 Jan 2012 Call Option that I entered was not fulfilled by the broker during the Monday New York Open thus I have no choice but to adjust the strike price one level higher. Due to budget constraints I chose to buy a single $28 Jan 2010 Call Option because according to the Weekly Charts of SLV (see Capital Gains Opportunity - The SLV Call Option (Part 1)) the price will have a huge probability of hitting the $30 mark next year.




In the US markets a unit of option, called an Option Contract basically equates to 100 shares of the stock. An option contract can only be bought in increments of 1 and there can be no fractional contracts. The $2.91 Ask Price of the call option I mentioned a while ago is actually denominated in a per share basis. Since I am going to buy one option contract that has 100 shares in it, I have to multiply the $2.91 Ask Price by 100 in order to determine how much I have to pay my broker in order to purchase that call option. But because I set my order to use the Limit Price of $2.95 per share in buying the call option, I have to multiply $2.95 per share by 100 shares under that call option which is $295. I have to pay my broker a commission fee of $14.95 for this trade thus my total expense for this first position is $309.95.


Entering the Second Position:
After the first position, I only have $120.05 left of my original $430 risk capital. Since I don't want to put this little bit of remaining money to waste, I am going to be more speculative with it (this is such a dangerous decision).



Take note that the process of entering the second position is the same with entering the first position.


Risks of this trade:

  • The $26 Jan 2011 SLV Call Option will expire worthless - It's OK for me that my second position to not exceed the $26 Strike Price by January 2011 because the loss that I will get from this will be recovered by my first position, which is $28 Jan 2012 SLV Call Option.

  • The $28 Jan 2012 SLV Call Option will expire worthless - If my first position did not exceed the $28 strike price by January 2012 I will not lose my hair because I am willing to sacrifice $430 of my savings and still be able to put food on the table. This is called calculated risk.


For more information about silver and Options Trading please get a copy of:






WARNING: Articles posted in this blog are from my actual life experiences and opinions. These do not guarantee a life of riches, alleviation of poverty, or making the world a better place. I am NOT LIABLE if you follow any of the articles posted in this blog and got poor.

INVEST AT YOUR OWN RISK. YOU ARE RESPONSIBLE FOR YOUR OWN DESTINY.