Options Trade #9 - SLV Short Put

Updated: Dec 6, 2018

VTS Community

For those of you who are enjoying the option trades in the Discretionary strategy, I've got a new one planned for next week that I think people will really have fun with.  It is a multi month sequence type trade though so I definitely want to put together a video explaining it so stay tuned for that.

Remember my plan is to introduce a new trade type roughly every month so we can really dive into the mechanics and people can ask all the questions they have.  The goal of the strategy is obviously to maximize profit, but it's also to teach people a wide variety of very effective option trades because I do feel this is a segment of the investing world that is highly underutilized.  But of course I only take the highest probability trades so a little bit of the speed of this is market dependent.

Today we'll reach into our existing option trading toolbox and use what's at our disposal for a new "Wheel of Fun" put sequence.  A video explanation of the strategy can be viewed here.

* Feel free to follow along in a paper trading practice account

Step 1)  Sell cash secured put

-  We need a target, and since we're looking for names that are in their mid to lower range of late, nothing in the equity markets really appeals to me right now.

1 year chart of SLV  (iShares Silver Trust ETF)

The trade: Sell 3 x 15 June 18' SLV 15.50 PUT Credit:  ~ 0.17

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 25,000 VTS Discretionary model portfolio is at 26,225 -  3 contracts  =  4,650 margin -  4,650 is about 18% of the portfolio

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


-  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 trade 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.

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