First off, just want to say thanks for all the valuable information on this site. I'm learning quite a lot though I do have some specific questions on how to fully benefit from this bull market.
Some background, I'm just out of college and I do freelance work, photo, video, advertising etc. I don't make a ton of money but I have enough spare cash to invest (or save) and I want to be able to maximize my profit making potential. I've been buying physical for almost a year now and will continue to accumulate steadily. However, I've been trading options a bit and I see the potential to turn a small amount of fiat into a larger amount of physical. So far my strategy has been to buy contracts pretty far into the future, usually at least four months or so. I have some Oct 44 and Jan 50 SLV calls right now, bought them several months ago.
My question is, what is the best way to play the options game? Are there better ETF's to play? When is the best time to buy or sell? Do I wait until close to expiration or should I sell once I make a decent profit? Should I buy contracts near the money, in the money, or ways out of the money?
I have plenty of other questions about mining stocks, IRA's, etc. But I'll hold off for now. Again, thanks for all the great info on here, hopefully this young bloke will be able to share valuable information someday soon, for now, I could use a good mentor. ;-)
Woops, nevermind. I found the handy dandy "search" function with a lot of threads regarding this subject. Should have been more diligent..
I have trade SLV and GLD options. Usually I buy a few months out and anything under aa $1 per call. I pick up more the one call, 2 or 3. Once the price of the option doubles, I get my principle back, and let the profits ride. And some very nice profits percentage wise they are. Be warned SLV and GLD are highly risky, if it is true they only hold paper metal. Keep stacking.
Yeah, I don't plan on putting all my eggs into the paper trade. I just figure if I have $500 to put into PM's, why not put that $500 into options for a while, hopefully makes a few times my money, then buy the PM's. As the Turd says, the PM's "will be higher next month, next six months, next year," etc. I do believe the SLV and GLD are fraudulent but they also provide an opportunity. No reason to look a gift horse in the mouth, as they say.
Thanks for the tip.
I recommend that you read through (start to finish) the forum of Option Strategies. https://www.tfmetalsreport.com/forum/2182/options-strategies
Some of this forum is introductory and conversational in nature and some of it outlines actual purchase scenarios and includes advice, warnings & strategies. This is beginner/novice Option forum that mostly deals with Call Options. There are lots of useful tidbits in the 120 posts you will find there.
You asked: Do I wait until close to expiration or should I sell once I make a decent profit?
The consensus seems to be that you shouldn't hold your calls into the expiration month. Try to take your profit before then.
I believe that an exception to that broad guideline exists in the case where your option is deep into the money.
Even if that is the case, you still are at risk of something going wrong in the few weeks before expiration and you will have almost no time to recover or adjust.
You should also be very familiar with the underlying stock of any option you own, its fundamentals and how it behaves relative to the metals market and the overall market..
You should probably stick to well known mining stocks (or ETF's). Thinly traded stock options have annoyingly large spreads between the bid and the ask.
You should learn about stink bids (they work for options too) and not necessarily chase a stock or its option when its rising fast.
You should have a defined exit strategy. On some option trades, you may be happy with a $300 - $400 profit on a $1000 purchase in the space of a couple of months. That's a pretty good return but it's a lot of $$ for a new option investor to put at risk. On highly leveraged lost cost, low risk, high reward, you may want to try for a home run.
One example is your Oct 44 SLV Calls where you might have paid $1 for them when silver was near $36. Your options are now $2 each. You have 49 days til expiration. It's your decision whether you sell at $2 or hold out for more. Whatever you decide, have a strategy for these calls as expiration grows near. Many experienced investors advise: Don't get greedy! If you get a 3 or 4 bagger , perhaps you should take a little off the table. Once again, it's your decision. You can always compromise and sell some and keep some if you own several.
Another example would be your Jan 50 SLV Calls where you might have paid $1 for the option when silver was $36 and now that option is $2.20 and you have a nice gain. These options have a lot more time remaining and the next 4 months are seasonally strong for Silver. Withe seasonality on your side, you have more reason to hold out for gains. However, you are still out of the money. There will be time decay on your Jan calls. Before serious time decay sets in, you probably will want to sell these. You can't go broke taking a profit, if these Jan $50 SLV options spike higher on silver running suddenly to $45-$46 in the next month or so, you may want to pull the trigger right then and there. (PS I own SLV Jan 50 call option and that's what I intend) You do not want the sickening feeling of SLV making it all the way to 49 and you not selling your options and they expire worthless.
You also ask: Should I buy contracts near the money, in the money, or ways out of the money?
For my answer, go to: https://www.tfmetalsreport.com/forum/2182/options-strategies?page=3#comment-511168 my post #117 on this subject should be helpful to you. September 2, 2011 - 3:26pm #117
This will not answer all aspects of this question, this post just discusses one representative example that should be instructive.
Hope this helps and be careful!
Deep in the money options can be nice. The premium you pay is a lot lower, for sure. The downside is you have to pony up more money. Back in the Internet daze, I loved trading deep in the money leaps. The leaps almost traded dollar for dollar with the underlying stock. In today's market in PM's cheap out of the money calls is a better way to go. The markets are too risky. Placing a few hundred dollars at risk on SLV or GLD calls is a fine bet. Especially, if you have a few months to run. One of those rishs in a big EE raid. Percentage wise you can make some handsome returns. The point of entry I look for in this market is a day or two after a big raid. After the volatility settles down. Volatility increase option premiums. Pick your strike price and the watch closely for your entry point. I would be looking at Jan, Mar, or later calls now. Rock had some good insight. The man knows his stuff. Read up on him. Remember, if you don't hold it, you don't own it. Keep stacking.
Thanks, for all the great replies. I've been reading the aforementioned thread, have some powder on the sidelines to buy this dip. Just trying to figure out my play now.