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« Endeavour Silver Expands Its Silver/Gold Resources for 7th Consecutive Year | Main | Smile You’re Silver Bug »

The Accumulator Trade 2 Open 07 March 2011

Peter Barnes 08 March 2011.JPG

Today we purchased a tranche of Call Options in Silver Wheaton Corporation (SLW) to open trade 2 of The Accumulator. They are as follows:

100 contracts, June 2011, Call Options, strike price of $50.00 for $3.05 for a cost of $30,500.00 and 100 contracts, June 2011, Call Options, strike price of $55.00 for $1.84 for a cost of $18,400.00. The purchase was made towards the end of the trading session as they started the session at much higher price levels. Silver prices drifted lower for the most of the day on the NYSE having put on a really good rally in Asian markets.

Considerations against this trade are the much higher silver prices suggesting that they might have run their course and the stock price of Silver Wheaton which is in record territory. There is also the effect of selling the good news after Silver Wheaton released its figures with earnings per share beating analysts expectations. To make things worse we also have this downgrade from RBC Capital:

Silver Wheaton (SLW) was downgraded today by analysts at RBC Capital and the stock is now at $44.78, down $0.18 (-0.4%) on volume of 13,842,490 shares traded. The stock was cut to Sector Perform from Outperform. Over the last 52 weeks the stock has ranged from a low of $14.83 to a high of $45.40. Silver Wheaton stock has been showing support around $43.59 and resistance in the $46.09 range. Technical indicators for the stock are bullish and S&P does not currently have a STARS rating for SLW.

Thomson Reuters have it as neutral and Silver Wheaton was Cut To Neutral From Outperform By Macquarie.

Considerations for this trade include the tight supply that exists at the moment for physical silver, gold prices closing in on a new all time high, the USD looking weak, the continuation of money printing across the globe, the rising price of oil and the troubles in the Middle East.

Some analysts are supportive as we highlight below, however, they don't share our view of SLW being $100.00 stock. They will probably get there when SLW is trading at $98.00 or so.

Silver Wheaton Target Raised To C$47 From C$42 By Scotia
Market Edge Second Opinion have it as Long.
Silver Wheaton Target Raised To C$44 From C$40 By Credit Suisse 

All in all we feel a tad lonely being this bullish, but, SLW has been very good to us. We have made purchases of the stock three times, the last being on the 9th August when we paid around $19.00 for it, so it is without doubt a super performer for us. We have also made some good profits trading options in SLW, however, as the first Accumulator clearly demonstrated, it is not easy. We will keep a close eye on this one and try to comment more frequently, but do remember that we post every trade on this site, so if there's no mention then we are doing just that, nothing, in terms of action, though we may be jumping through hoops behind the scenes.

Finally, Peter Barnes made an appearance in BNN today, well worth a watch if you can spare the time.

We reserve the right to trade this position as we feel fit and have not limited ourselves by any rules other then our intention is to roll the proceeds into the next trade. We have set a target of making one million dollars at which point the accumulator will be closed. At any time throughout this little venture we may decide otherwise and close it down. These are real trades with real cash so the maximum we can lose is this stake. Our normal trading activity will carry on as per usual.

This exercise is not part of anything that the chooses to do.

Please regard as a bit of fun where we get to sweat and you get to chuckle.

Your decisions and your operating criteria is exactly that, its yours, your responsibility, you are accountable for your own actions.

The use of both stocks and options trades will form the basis for this exercise.

At times it may be difficult to purchase the number of contracts that we need in order to deploy all of the cash so we may need to buy a tranche of options on any given trading day. Hopefully we can dispose of them in one trade but again we may need a little time to complete the move.

The idea is to have some fun with it but we are sure it will make us laugh and cry. And this is definitely not something that you should try at home, got that, good.

The probability of this being achieved is just about nil as any speculator will tell you.

For reference, On March 2nd, 2011, we closed trade 1 on the Accumulator as follows:

In today's trading session we sold the remaining 50 Call Options on Silver Wheaton Corporation (SLW) for $2.72 per contract. These are the March 2011, Call Options, at a strike price of $42.00 for which we paid an average cost to $2.19 per contract, so today’s profit was in the region of 24%.

In total then we have the following:

100 contracts sold for a profit of 5%
50 contracts sold for a profit of 32%
50 contracts sold for a profit of 24%
The average return is 16.5%.

We are now placing the proceeds of about $50k into this trade.

Silver Wheaton Corporation trades on the New York Stock Exchange under the symbol of SLW and closed yesterday at $45.02. The company has a market capitalization of $15.60 billion, a P/E ratio of 71.93, with 346.56 million shares outstanding, Net Earnings US$0.35 per share

PS: Just in case you missed it we have just closed an option play on with an average profit of 96.5% on Silver Wheaton Call Options. Click here to read more.

Many thanks to those of you who have recently signed up for options trading service, its very much appreciated. Please be patient as we have a number of new trades on the drawing board and as you are aware the timing of them is critical to their success.

We now have 65 winners out of 67 options trades, or a 97.00% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.

sk chart 19 Feb 2011.JPG

The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and 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.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

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Reader Comments (8)

Well ,good luck ,as we are now approaching the end of the traditional "precious metals " season. Prices nearly always fall in Sring/ early Summer. Even last year that happened but for a much shorter period than normal.
More in the next gold prices letter.

March 8, 2011 | Unregistered Commentersilver bug

Those downgrades by RBC, et al mean absolutely nothing, as they're based on their own meaningless price targets being exceeded. I remember vividly when earnings prognosticator as opposed to a brokerage...had a sell on Agnico at $10 after the mine shaft incident back in 2003. They don't know anything you and I don't know. And we don't know as much as we'd like to believe we know.

You're on a runaway stallion right now. Might as well see how far it'll take you. I have a humble few hundred shares left at this point. I'm actually thinking of converting to a debit spread, as I prefer caution to heroics. Can't go broke booking a gain and all that, but I wish you well. I wouldn't be surprised if you're hooked onto a rocket at this juncture.

Gee haw!

March 8, 2011 | Unregistered Commenterfallingman

Well , I am short. Averaging 36.15. It is my turn to make profits.

March 8, 2011 | Unregistered CommenterDi

At what price will you cover if the trade moves against you genius? If I were you, I wouldn't cover, no matter what, because you're probably really onto something with this whole silver-to-$2.50 thing. Only $33.50 to go.

Don't let the backwardation or virtual disappearance of physical supply concern you. I'm sure there's no chance of the most epic short squeeze in the history of commodities occurring in silver. I'm sure it's rising like a rocket for no reason.

March 8, 2011 | Unregistered Commenterfallingman

The price of silver is rising because the shorts are going to have to cover their position sooner or later and I think it's going to be a lot sooner than people think. The end of this month, March, seems like soon enough. Many silver bugs out there know that there is no way all that paper silver certificates that's been produced actually has the physical metal behind it. And when people start demanding their silver that's supposed to be represented on that piece of paper, they're going to realize that there is no silver bullion available at the moment for that piece of paper and that's when the price per ounce will really take off. This is going to be a great ride coming up!

March 8, 2011 | Unregistered Commenterdaveydog


If you are short at $36.15 what is your stop or sell point set at?

Please take care as silver prices in Sydney/Hong Kong are ticking up ever so slightly, 21:48 Tuesday (EST) - Time in New York, NY, USA

March 8, 2011 | Unregistered CommenterSilver Prices

My forcast for the May 10 Options for 2011 for EXK on March 25 is $.95

March 20, 2011 | Unregistered Commenterbarry purkis

Barry, wrong place - go to the competition page please, thanks, Bob K

March 20, 2011 | Unregistered CommenterSilver Prices

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