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« Silver Prices at $19.34/oz | Main | Notes From the Field: Peru Prevails »
Sunday
May092010

Silver Wheaton Corporation: Watch for the next Options Trading opportunity

SLW Chart 10 May 2010.jpg



Taking a quick look at the above chart we can see that SLW is now taking a breather having put in a good run over the last week or so which produced a yawning gap between the stock price and the 200dma and the RSI had popped up above the ‘70′ level to hit '80', which indicated that the stock was overbought.

We now need to stay on our toes and monitor Silver Wheaton's progress as the possibility exists for a repeat performance. We need to establish just where and when this correction has run its course and then weigh up the possibility of Silver Wheaton making another run to higher ground. Having sold our Call Options we were tempted into doing a complete U-Turn by purchasing a few Put Options, however, we are in a bull market and financial turmoil in the eurozone weighed heavily against that trade. But, from a chartist stand point it was worth a punt and would have worked out well had we moved fast and also been fairly quick to close the trade, but there you go.

Options are not for the faint hearted so go very gently with them.

Silver Wheaton Corporation trades on the New York Stock Exchange and the Toronto Stock Exchange under the symbol of SLW and is currently trading at $18.44.

The Company has a market capitalization of $6.32 billion, with 342.54 million shares outstanding, a 52 week trading range of $7.12 to $20.22 with an average volume of 5-6 million shares traded, although spikes in trading have seen 14 million shares change hands.

Have a truly sparkling day and be prepared for a rocky week as the EU continues to dither and Britain has refused to put money into the current deal, another case of watch this space.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

Over on our sister site, silver-prices.net we have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

If you would like to get a bit more bang out of your buck, then check out our Options Trading Service please click here.

For the analysis of a recent options trade that we have just closed please click this link.


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Reader Comments (8)

Well done gentlemen, one of these days when I develop some financial cajones I'd like to consider Options. In your opinion, what is the minimum dollar amount to start trading? And if it matters, thru your service. After witnessing as it happened last week with the Dow, I'm even less happy with my SP500-indexed fund in my IRA. I'm leaning heavily to changing that to a precious metal account. Thanks in advance for your insight on the subject....Snakeman Scott

May 10, 2010 | Unregistered Commentersnakeman

Snakeman,

A consideration for you.

I know from your posts that you're a good guy and a smart guy. My unsolicited advice, for what it's worth, is to first be an option WRITER rather than a buyer.

What follows is the conservative approach to quickly and relatively safely building wealth in a retirement plan.

Almost all brokerages will now allow you to write covered calls...a great way to generate income. Yes, you give up the thrills and some of the upside potential, but it's the steady way to build wealth. Once you do that for a while, most will allow you to do spread trading. That greatly speeds up the process without much causing you to take on much more additional risk.

1) Buy the mining stock of your choice or the GDX and sell some in-the-money options against them. That's a more conservative play than just holding stock and gives you some tax deferred income in the retirement account, where generating income vs. cap gains is more important.

2) Then, you can get more ambitious and start selling some at-the-money or slightly out-of-the-money calls against your positions when the indicators line up right. (Best time...When our friends, the Kirtleys, suggest you BUY the options.) Conservative, low risk way to take advantage of their excellent sense of timing. But you're hitting singles vs. home runs...in exchange for very seldom striking out.

3) My preferred method is to put on debit spreads. That way, you keep the risk low but increase your leverage and that really ramps up your returns.

You buy a fairly deep in-the-money option and sell a higher priced one against it and pocket the spread in premia paid vs. received. This is the the holy grail of investing. You're taking advantage of an uptrending metals and mining share market to systematically rake chips off the table. The premia you receive are high, because so many people want to bet on higher share prices through options, but your risk is relatively lower than it would be, because the bull market will likely bail you out eventually if we get any more sudden, sharp drops. And each trade is for a limited time. Pick your times well. Be in when the sun is shining and out when the technicals look bad.

4) Lastly, the best time to simply BUY options straight up is when you're looking to sell your covered options or do a debit spread according to plan and you just can't bring yourself to do it, because it seems like such a giveaway. Then you switch tactics and buy. This is what happened after Agnico-Eagle had the mine accident back in 2004 (???) and the stock went down to 10ish...and when gems like SLW and AUY were knocked down to ridiculous levels in the fall of 2008. That's when you load up.

5) If you get good enough using the gameplan above, then you can buy options outright as a trading strategy, but the wipeouts hurt and you have to have the personality and temperament to stand the stress. For many, it works. For most, it just isn't worth the strain when a more conservative approach gets such great results with less risk and there's so much less active monitoring required.

I've run on, but one last thing. I often take some of the proceeds I expect to get from selling options to buy a couple of out of the money calls...just in case the shares really fly. Also, if I buy 1,000-2,000 shares of a stock, I won't sell options against the whole lot. I might hold 200 shares unoptioned, so I can benefit more if the price rises, as I expect.

Bottom line: Start out conservative by playing the role of the casino and enabling gamblers to gamble. Learn to squeeze money out of the system when the technicals are in your favor. Speculate with long options only once you know the other side of the game well and then only when the setups are great. If you do well at that and love it, then, let er rip.

Hope this helps.

May 10, 2010 | Unregistered Commenterfallingman

Fallingman,

Thanks for taking the time to make a detailed comment, your contribution is most appreciated.

Rightly or wrongly we looked at our mail bag when we were getting requests for an options service and thought that we would commence with a few trades that were simple to understand making it easier for our readership to take part.

Buy this Call at $1.00 and later sell it at $2.00, hopefully the 'feel' of leverage would be conveyed to the reader.

When considering covered calls you do need to own the stock which in turn means that you have to own the stock for any covered call that you wish to trade. This can mean having to purchase a number of stocks at the outset and not everyone has the funds at their disposal. We prefer the freedom of being able to trade AEM one day, SLW the next day and so on. We were looking at Cameco yesterday as an options trade although we really don't want to be stock holders. There are 100 shares in each contract so to own 100 of AEM is going to cost $6,300 at the outset and so on for other stocks.

However, we do take your point and a lot depends on just how much experience the reader has and how comfortable they are with each strategy.

Over the years we have found that the simpler the trade, the more success we have had, but that's just us. As always its a question of what works for you.

As you are probably aware we have closed our last 7 trades with an average gain of 51.17% in an average of 37 days per trade. If we had put $1000 into each trade then we would be up about $3,500 for a fee of $99.00.

Finally, if you have a possible 'winner' on the drawing board, how about telling us before hand and we will post it on this site, giving you all the credit as the author and hopefully a profit for our readers.

Thanks once again.

May 10, 2010 | Unregistered CommenterSilver Prices

Looking at the MACD and the sto. there appears to be the probability that there could be some sideways action in here but I don't think the price is going down significantly. Things are flying off the handle right now. Investigations into Morgan and Goldman manipulating metals prices. Hell the price of the metals started going up the minute they were told they were being investigated.

Where is the money coming from to bail out Greece and then the rest of the PIGS? (Ye I know the celebration was on over that one today) Goes to show you the stupidity in the world of finance today.

There is a sea change coming and it looks like "sell in May and go away" just might not happen this year.
Just my opinion !

And If you are waiting to load up again, just where do you think a good loading spot would be ? Or would I be infringing on your loading zone ? If silver prices stay neutral SLW will also. This is a strong company and could just mark time until its ready to run to 23 from right around here. Personally I think we see 17.50 again and that's it. Maybe. Just don't want to see you left behind.
I do enjoy your email updates though.

Like I said just my opinion!

May 10, 2010 | Unregistered CommenterMT

MT,

We apologize if we have not been clear enough regarding SLW, in our last post on the them we were trying to say that we are looking for another entry point in order that we could possibly get a repeat of the options play that we have just had.

When we sold the Call Options we were of the opinion that SLW had run as far as it could for then and so we sold our options. Waiting for and identifying another chart set up usually isn't easy but we are trying to be patient. However, as you rightly point out things are flying off the wall and who knows just where the chips will fall at the moment.

SLW is our biggest holding and we are not looking to sell any of them, but we do struggle with the thought of putting more cash into just one company, too many eggs in one basket etc, but that only applies to us. As for buying we are just not sure; we would prefer a better chart set up, on the other hand silver and gold prices are headed higher so does it really make a lot of difference in terms of what we pay for this stock.

A gradual accumulation of SWL might be the way to go for those who haven't got any and like the stock.

Again, we could well buy both the stock and the Call Options in the near future.

Sorry this is still vague, but there is such a lot to digest on the world stage just now.

May 10, 2010 | Unregistered CommenterSilver Prices

Thanks guys.

You fellas have figured out the essentials of buying options. Your track record is great and I should have clarified that there's no reason for anyone to not try simply going long options, as long as they manage the risk in terms of dollar amounts committed, concentration of positions, etc.

And yes, for what you're doing , it's critical to keep it simple, for sure. You wouldn't be doing your readers any favors by getting more complicated.

My post, which was too long and complicated I'm afraid, was intended to outline a way for someone with a retirement account to conservatively enter the world of options by taking baby steps before they walk. It allows them to keep risk low and generate income while learning how options work from the safety of the being in the position of option SELLER. Being the "house" is such a warm and wonderful feeling as time premium melts away.

It's good to be an INFORMED speculator. That's why you guys are so invaluable. It's also good to be the casino when so many are uninformed and prone to gamble.

My experience is that so few people go beyond just buying options and then praying they got it right. The fact is, options give folks almost infinite flexibility and it's so easy to tailor trades to your level of risk tolerance (and ability to monitor) if you just know how to use the tools.

That said, if people will just follow your lead closely, they can jump right in and profit from plain vanilla long option trades.

Your mission isn't to teach people about options. It's to make them money trading options. That's why I took it on myself to offer a few thoughts...not to dissuade anyone from following your lead on long trades...hardly...but to offer a way for someone with a retirement account who might be a bit wary to ease his way in. It's a great strategy.

Right now, I'm trying to decide if I should just listen to the macro fundamentals, not get too cute with timing and just load the boat on several stocks and more junk silver to await the mother of all currency crises...or wait for another financial crisis. But if I see what looks like an obvious trade, I'll let ya know. In the meantime, Check MFN. Seems undervalued, overlooked, and likely to be on somebody's list of acquisition targets. I hold some stock and have sold puts. More of a value play with timing uncertain, not exactly suited to a long call option strategy.

Love what you do and you're most gracious. Live long and prosper.

May 11, 2010 | Unregistered Commenterfallingman

Thanks Fallingman and GP's for the education and insight, much appreciated...Snakeman

May 11, 2010 | Unregistered Commentersnakeman

Team,

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

Weve done a bit of a write up on gold-prices.biz

May 12, 2010 | Unregistered CommenterSilver Prices

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