Silver bull call spreads

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Green Lantern
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Silver bull call spreads

Hello,

I am a newbie to purchasing pm options.   And to be honest, I've read some books sometime back but I still have a hard time at the basics.  And I need some advise related to my September and DEcember Silver bull call spreads.   The brokers are just too busy to sit and explain.   All my picks were from a very popular newsletter writer and his track record is very good.  And some were from my brokers newsletter.   I am going to switch brokers to work with the person that supports this newsletters picks.

I have the following

Silver September 47-48

Silver September 80-86 (yes, I know)

I had purchased 4 December 49-50's

I then purchased 4 December 50-51

Then they became 8 December 49-51's.  My broker told me after the fact that you can't go long and short. 

Ok, September TOAST.  Everything expires 8/25.  Back in April or May when Silver was off the map and everyone was euphoric a newsletter writer suggested the 80-86 only as a long shot and not to bet the bank.  I didn't and only bought one.   I don't mind losing playing a long shot and there's nothing I can do. 

Two weeks ago my broker called me up and said we can roll the September 47-48's to December cheaply.  He put in the bid but it never filled.  Now it's really expensive like 1500 or something.  What I didn't know is that the 47's/48's are almost worthless and you can't really sell them because nobody is gonna buy.  That's basically what he told me or how I understand it. 

Ok, so I lose but I don't want to make the same mistakes for my December and wait too long that they become worthless if the options never go in the money.   Like everyone I am optimistic that silver will reach 50 by years end but I am not willing to bet the bank.   I want to take some, if not all off the table soon. 

Let's say that come October/November, they are not yet in the money, maybe silver is at 45, when does it become too late for me to try to sell them because nobody wants to buy the contract? 

Approximately what are they worth. Average price 49  is 100.75.  Average price 51 is 340.   Opening trade equity for 49 is 22,154.  Opening trade equity is -17,010.  

I realize that I have to go back and read my books to refresh and that's my responsibility.  In the meantime, before I call my broker and he speaks gibberish to me and puts me on hold 10 times, i'd appreciate if you could tell me what you would do with the Decembers 49-51's if they were yours. 

THANK YOU

Edited by admin on 11/08/2014 - 06:16

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Green Lantern
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Don't think an answer is

Don't think an answer is coming from anybody on this one. 

Bottom line is I sold with silver going to $44.00.    Doubled my money.  going into physical. 

Maybe I'll just follow Turd's trades. He seems to know what he is doing with these type of calls. 

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madcow
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sorry, i have no answer for

sorry, i have no answer for you as that is way out of my league

Woody Mornings
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I would have liked to heard

I would have liked to heard an educated answer to that as well.   My broker is currently recommending a bull call spread for dec 11.  45/46 the premium will amount to roughly $1500.  

I am told the best case profit scenario is 5k - fees/commission with my total risk being roughly $1,500

I'm trying to practice this via a sim-trade plattform but can't seem to get filled even with a market order.

This noob would love to hear more about thoughts on bull call spreads.  I'm still unclear as to how I can calculate the premium for a particular spread.

Thanks

Woodrow 

Vypuero
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are you buying futures options or something else?

I am planning to do some trading by buying a future position and then selling an OTM call against it.  This limits my upside, but gives me extra money to weather out the storm of volatility.  In fact I could even cover a dip.  Since the whipsaws are killing me but I believe I am 100% correct on the overall move, I now plan to use this strategy and this will help me think this through:

I purchased a Silver Dec future for $41.50 (slightly more but close enough).  This is a full 5,000 oz contract.  So,  a $1 dip zaps me for $5k, which is pretty damn heavy to keep - $2 would be $10k and pretty soon that looks scary, yet we have been down and back from $39 before.  Options expiry is 11/22/11.  I will sell a call at $50 for a premium of $4,775 that I get now.  So if it goes down $1 I am break even.  I can sell and buy back if it goes lower also, if I wish.  If it keeps going up but never gets to $50, I get the profit + the extra money.  If it goes over $50 I will lose out on the extra money. 

I THINK I could also sell a put at $36 for another $6k - and the price would have to drop below $36 to lose any money.  Even then, if silver recovered I could get my money back.  I have to think how that one works.  Basically it means that I make the cash if it doesnt drop that far, but if it goes under I have to buy the future at that price.  Since I already own one, I should be covered.  The call would not matter by then.  If I stop-loss at $40.5 and wait, I would not have to buy back unless it dropped below $36 but I do have some hefty downside risk should the silver drop through the floor - say $30, that would be pretty awful loss.  Probably not worth the risk unless you need to buy silver physically for something (like a big buyer of silver could do that). 

Just some ideas on how these things work - you need to understand this and not ever rely on someone like this.  You need to know exactly what can happen and when.

The idea I would suggest is buy the $50 call.  It would cost now what I wrote above - $4,775 at this moment.  Look at the bid and ask when the market is open and pick something in the middle - if the price drops a tad or you get someone who wants it you will get your bid.  Or you can can limit buy for the bid price same thing but if silver pops up your risk missing it.  DO use a limit on a buy order or the market makers will rape you.

So, now watch silver pop to say $47 or $46 - then cover.  Don't wait for the end.  Chances are a move like that will net you - let me look at chart - if silver were instead $5 higher then lower that to a $45 call  (time will start dropping these, which is why I suggest covering on a sharp upside move) - $10,300 - so you can easily double your money.  Why get greedy?  It would have to get to over $52 to do better than that.  You can buy 2, then sell 1, and let the other run, as another option.

Vypuero
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The spreads are fancy and harder to figure out

With this volatility I don't think they make sense.  Buy a call, sell on a rise, buy another one on the dip, don't sweat the swings as much.  I may start that myself.

Oh - I realized if you sell a put, you just sell a future to cover yourself.  selling a put is same as selling a call for a short vs. long position.  I am wondering about both - You could sell a put and sell a call.  You get $ - you will lose if the price hits either strike.  If you don't want unlimited liability you can buy the future when it gets to or close to strike.  You can still get whipsawed around, nothing is risk free. 

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