I was thinking about starting to trade silver options, and was wondering if anyone on this board already does. I don't really know anything about it, but was thinking that it would be a good risk to reward trade using leverage. Buy a contract at a strike just a little out of the money, and that had the longest expiration date, somewhere just under 5 years away, and hope that silver goes a lot higher and that I can sell when silver is at $40 an once. As I think it has a good chance of reaching this level within the next 5 years. Or at least getting near. Like I say I think it would be a good risk to reward ratio. I am young so even if I compeltly lost out on this trade it wouldn't be the end of the world, and it has the possibility of growing my net worth by a substantial amount. Anyone have experience with silver options?
woah....thats gutsy investing....leveraging is risky stuff. I am too much of a pussy for that kind of strategy.
jparrie trades them and does well. I have traded them in the past, but use other methods now. My advice (merely advice) would be to steer clear if you know nothing about them. Firstly, I doubt you will find an option dated 5 years out. But if you did, the theta on such a long dated option will kill you - there is no way that would be a good risk:reward trade. If it was that easy, every one would be doing it. Learn about option greeks, then rethink your strategy.
This thread by Bullion Baron may be of interest: http://forums.silverstackers.com/topic-35126-does-anyone-here-trade-hold-options-in-slv-gld.html
Thanks for your advice of keeping clear, but I am not going to listen I am going to do some research into this properly, and then see if it would be possible to make a trade that has a good risk to reward ratio. You might be right about futures with long expiry dates having premiums that are too high and not being a good risk to reward trade: But I will need to look into it and work out the math. What other alternatives would you recommend to benefit from the (speculated) increase in silver over the next 5 years apart from buying physical silver or slv shares? I like the idea of options as the maximum loss is known before hand, and you don't have to have a stop loss to do this, price could drop below to where a stop loss might have been set if trading. I could trade futures perhaps? I think silver also trades as mini futures? But I would have to make sure that I did not over leverage myself and also work out if any additional funding would be needed if prices dropped and a margin call was made. Trading futures without some form of leverage seems a bit of a waste of time, unless you know the price is going to rise yet don't have all the capital to pay now. I like the idea of options, so that I can increase exposure, yet know my maximum loss. I want to put a certain amount down with the assumption that I could possibly loose it all, or make a rather large gain.
Strike price $20. Expiry December 2014. Premium $15,510. Profit if price went back up to $25 per oz before expiry would be $9,490. For me seems too risky, and contract size is too large. I would have liked a 3-5 year expiry with a risk reward 1:10. But I think I was dreaming when I thought of these numbers. Like wrcmad said, If it was that easy, every one would be doing it.
Hi Chrissilver, yes I trade both, options and futures. I started off very much like yourself many years ago by just buying puts or calls and praying that I was right, which quite often I wasn't. Then I foolishly ventured into writing naked options. I did very well for quite a long time and thought that I'd found my holy grail - then one night lost $30k. Ouch. Now I take a much more placid view of options, mainly selling spreads and using good old time value to earn my $$$. I will occasionally just buy a long dated call or put, but I'd have to be fairly convinced that a move was imminent in order to do that. I recently jumped into USO calls when oil broke through $100 so that is doing well, so far anyway. Now I'm in profit I have two choices, simply sell or sell a call higher up the ladder to protect some gains. I think oil is going higher so I may do the latter. (Now watch it plummet!) You won't find a market much more than about 12 months out to expiry, and if you do you'll pay for it. Futures is a very different beast and we've discussed it elsewhere on these forums. I'd stay away if I were you. Talking of which the market opens in about 3 minutes so I'm off to lose some more money...
