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« OPTIONTRADER: 20% in 46 days, Risk and Leverage | Main | Canada the Envy of the G7 »
Wednesday
Jun022010

Silver Wheaton Corporation Put/Call Ratio

slw logo.jpg

Silver Wheaton Corporation (SLW) options saw interesting call activity today. A total of 1,164 put and 5,880 call contracts were traded raising a low Put/Call volume alert. Today's traded Put/Call ratio is 0.20. There were 5.05 calls traded for each put contract, according to Market Intellisearch.





With any technical indicators we must take care not to place too much reliance on just one of them, but to try and consider a number of them before making an investment decision. This snippet goes on to say 'Thus, unusual volume provides reliable clues that the stock is expected to make a move' but note that it does not say in which direction the stock will move, but, judging by our mail bag you are expecting SLW to head north. Try to remember that when someone buys a Call Option there someone else standing on the other side of that trade who is equally as confident that the stock is about to head south. So the purchase of a greater number of Call Options can sometimes be mis-leading. As it is we also think that SLW is heading higher for reasons that we have explained when we purchased some Call Options recently. Anyway the remainder of this article reads follows:

Options are useful tools for predicting the movement of the underlying stock. Put/Call ratio statistics serve as a useful predictor of investment sentiment, indicating what experienced investors are doing in preparation for a move of an underlying stock. Thus, unusual volume provides reliable clues that the stock is expected to make a move.

Silver Wheaton Corp. (SLW) closed at $18.58 in the last trading session and opened today at $18.48. SLW is trading at $19.10, up $0.52 (+2.80%) in today's trading session. The daily low is $18.32 and the high is $19.10. The trading volume of 5,221,634 is below the average volume of 6,965,050 shares. SLW is trading above the 50 day moving average and higher than the 200 day moving average. The stock's 52 week low is $7.12 and 52 week high is $21.58.

Silver Wheaton Corporation trades on the New York Stock Exchange and the Toronto Stock Exchange under the symbol of SLW

Have a good one.

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.

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.



Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net 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.

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Reader Comments (5)

Just a quick comment of clarification on the following:

"Try to remember that when someone buys a Call Option there someone else standing on the other side of that trade who is equally as confident that the stock is about to head south."

I would suggest that while that would certainly be the case for naked call sellers, there aren't that many of them out there. Most call selling comes from people either selling covered calls or putting on debit spreads. In those cases, they may either have no real opinion on price direction or may actually expect the underlying issue to rise.

I'm a seller of options all the time and I WANT and often expect the underlying to go up. (I make money, the buyer of the call makes money. What's not to like?)

In the case of a low put/call ratio, more buyers means fatter premia and more incentive to sell...unless you think "somebody" knows something you don't. Hmmmm.

Love ya. Have a good un.

TW

June 3, 2010 | Unregistered Commenterfallingman

Fallingman,
very interesting...i'm relatively new to the Options Game and have had wins and losses - up ~$8,500 since Dec 15, 2009, but, I have only bought calls and a couple of puts. You sound knowledgeable about different option strategies, i.e. "seller of options all the time..." can you explain in simple terms what this means and how you place a trade?
Thanks.

June 3, 2010 | Unregistered CommenterMark

Sure Mark. And if you're up $8,500 since Dec 09 on long option trading, maybe I should be asking YOU questions.

I use two primary strategies.

1) I own stock outright and I sell call options against the long stock position. With some richly-priced stocks, such as Eldorado, which I own a ton of with a cost basis of about a buck, I'm always dangling the bait to someone who thinks it just has to go higher. Cramer? Given how many times I've sold options against this bad boy and had them expire worthless, my actual cost basis minus option premia received is negative $5-6 or so.

2) In order to achieve more leverage with only slightly more risk, I'll usually put on debit spreads, where instead of buying the stock and selling calls against the stock itself, I'll buy an in-the-money call in place of the stock and sell a higher priced call against that. Yeah, they let you do that. Very cool.

Key point: I'm willing to give up gains in the stock or option I hold above a certain level.

Let's say I hold 1,000 SLW at 18.55. I might sell 10 Sept $20 strikes at $1.40. You place a sell-to-open trade just the same way you place a buy-to-open. Just as simple and easy.

But wait...if the stock moves to $25 or 30 by Sepetmber, I will never get more than $20 PLUS the $1,40 in premium, so why would I do it?

1)I get the $140 per contract right now as income. Some people look at it as a virtual dividend. It's a bird in the hand.

2)Same thing looked at from a different perspective...it lowers my risk in the stock (or the long call). My cost basis on the stock is now $17.15. The stock can fall 16.6% and I still don't have a loss.

3) I make money if the stock goes up, stays flat...and even if it goes down less that %16.6. My win percentage goes way up. Kind of like being the casino vs. being the gambler. Me likey.

4) If the call is exercised, I still make 16.6% in just under 4 months, so we're not talking chump change.

($18.55-$1.40 = $17.15 cost basis. $20-17.15 = 2.85 profit. $2.85 divided by $17.15 = 16.6% gain x roughly 3 annualizes to around 50% a year.)

And consider this...what if it closes at say $20.05 on the third Friday in Sept? The call buyer loses all and I gain the maximum. Lemme tell ya, that happens quite often.

5) I usually don't option off my whole position. I might sell options against 700 or 800 shares. That allows me to be happier with giving up gains I could had when I get taken out on a sharp upmove ... and I've still limited risk on the whole position in case of a downmove.

6) It requires less attention and I expend less adrenaline. That ain't a small thing. The tortoise is a whole lot more chilled out than the hare.

Even if you have some losers in the mix, if you do this over and over year after year, the compounding will make you rich.

More conservative?...sell a $17.5 or a 15. That'll get you more income/protection. It's a way to make a crazy volatile and dividend poor sector like the mining shares act like a somewhat more tame income vehicle.

More aggressive?...sell a $22.5 or a 25. That'll make you more money IF you consistently guess right about the short term direction , while still giving you some buffer. While more aggressive than what I'm comfortable with, this would be a more conservative way to play the Kirtley's recs. Gives away some upside in exchange for lower risk.

I've done around 150 of these trades over the last 8-9 years or so since I got active in the metals markets again and I have only one outright loss...on GG...during the 2008 crash. Mostly on more conservative positions, so don't think I'm some whizbang analyst. I'm pretty good, but most people can do this successfully.

If this doesn't answer your question, ping again. I can go on and on, but that would probably be less than helpful.

Last thing: Straight option buying can be phenomenally rewarding if you're good and have the emotional stability to accept loss. (I hate losing.) This site helps you get it right, but, as the Kirtleys very responsibly point out, going long options involves taking on a lot of risk. Other than being naked short, every other strategy involving options is less risky and can still be very rewarding.

June 3, 2010 | Unregistered Commenterfallingman

Fallingman,
Thanks kindly for answering my question.
I kinda figured out the first point (you have to own shares in order to do this) but the second point debit spreads - is the one I was not aware of.
Just recently I have been a victim of a couple of the losses you mention with my calls expiring worthless...which got me thinking, there must be a better way. I have achieved the majority of gains (AEM, F, IWM shares, AGU) early in the year without the volatility that was/is prevalent.
I, too would like to cut down on the "adrenaline rush" and make more prudent/conservative/income producing type option trades. These types of strategies are what I'm looking for...and for that I'm grateful for your opinions/answers.
Thanks and all the best!

June 4, 2010 | Unregistered CommenterMark

You're most welcome. It took me a few years to really grasp and put into action the various strategies. Play around with them with small amounts and see what strategy or combination of strategies suits you best. When I realized the power of spread trading, I felt as if i'd discovered the holy grail.

It feels good to have time decay working in YOUR favor rather than against you.

Good luck!

June 4, 2010 | Unregistered Commenterfallingman

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