Options Trade #12 - SLV Short Put

Updated: Dec 6, 2018

VTS Community,

I've got a video in the works for a new type of option strategy for the VTS Discretionary that will be great for everybody, but the reason I'm giving this teaser is because it's also going to serve as a possible work around solution for anybody who's having difficulty trading the volatility ETPs directly through their broker.

*  I'm looking at you citizens / residents within the European Economic Area  (EEA).  The recent troubles with Interactive Brokers and the whole MiFID II regulations is a tough one and I know for a few of you the brokers themselves have not been much help in finding solutions.  I hope we can solve this for you soon, I'm on it!

The VTS Discretionary model portfolio finds itself completely in cash today as all of our trades from the last month have been closed or expired for profit.  At times like this I feel like a kid in a candy store.  A pocket full of change and a whole store full of things I want to buy.  One of my "best practices" rules is I always check out the possibility of opening fresh new positions on anything that we already traded and had expire on us last month.  There's a couple reasons for this:

1)  Sometimes an expired trade means it will be just as good if not better than the previous one we had open.

2)  There's thousands of publicly traded companies but something you probably noticed from the last few months is, when you have a trade open on something you tend to put it under the microscope.  I bet many of you had never really heard of CVS Health Corporation three months ago when that trade started.  Now that you've watched it for three months you're much more familiar with it than most of the other thousands of companies we could be trading.

So revisiting what was already a good trade for us in the past is always a good step one for finding new trades and it just so happens that I still very much like the silver trade. 

1 year chart of silver  (SLV)

The Trade:Basic "Wheel of Fun" Put  <--- Video explanation

Sell 3 x 20 July 18' SLV 15.50 PUT Credit:  ~ 0.33

Margin requirement: -  1 option contract  =  100 shares if assigned -  100 shares of SLV @ 15.50  =  4,650 -  This trade requires 1,550 in margin per contract

-  The VTS Discretionary model portfolio is at 26,442 -  3 contracts  =  4,650 margin -  4,650 is 17.6% of the portfolio

* You can scale your trade to roughly 20% of your VTS Discretionary funds

Stop-loss: -  We always use a 10% stop-loss on this type of trade -  1,550 per contract is what the trade is valued at -  1,550 * 10%  =  155

(465 for the model portfolio because it's 3 contracts)

* If we are down more than 155$ per contract we will close it

Future action: -  As we know the wheel of fun put sequence is designed to get a better price to acquire shares than otherwise possible without options, and then make more profit by selling premium until we get rid of the shares through covered calls.

-  We may end up doing just that, we'll see how this plays out.  However there is another possibility in my mind right now which of course I will do a full detailed video on if we end up taking this route.

-  But currently the Gold : Silver ratio is getting pretty juicy and it may present us with a nice pairs trading opportunity in the coming weeks / months.  This first leg of the wheel of fun if we get assigned silver could easily be reworked into a simple pairs trade: long silver short gold.  

We'll see how this plays out, but it's a nice trade with several ways to profit.

Want to join the awesome VTS community?

* All information, analysis, and articles on this site are provided for informational purposes only. Nothing herein should be interested as personalized investment advice as I make no recommendations to buy, sell, or hold any securities or positions. I'm making this website available "as is" with no warranty or guarantees of it's accuracy, completeness, or current's. If you rely on this website or any of the information contained, you do so entirely at your own risk. I do not hold myself out as a financial advisor and nothing herein is a solicitation for any fund or securities mentioned. Although I may answer general questions about the information herein, I'm not licensed or registered under security laws to address your personal investment situation. Past performance is not indicative of future results. Any and all financial decisions are the sole responsibility of you the individual.