A strategy idea for options trading investors.

TRADE COMMENTARY:

It is time to once again seek the safety of precious metals. Even though silver doesn’t shine as bright as gold it does have some industrial uses and it is lagging gold in performance. We think that precious metals need to become a permanent part of every portfolio. Although these markets can be volatile we try to limit the losses in this position by buying the underlying ETF and selling out-of-the-money calls. In these uncertain times every trade, whether bullish or bearish, should have defined risk and loss parameters.

UNDERLYING: iShares Silver Trust ETF (NYSE: SLV)

The assets of the iShares Silver Trust consist primarily of silver; the objective of the trust is for the shares to reflect the price of silver owned by the trust, less the trust’s expenses and liabilities.

DATE:                                               Wednesday, June 22, 2011

STOCK/INDEX:                                  SLV

STOCK PRICE:                                35.50

OPTION PLAY:                                  Covered Call

BUY/STRIKE/MONTH/PRICE:          100 Shares @ 35.50

SELL/STRIKE/MONTH/PRICE:         1 SLV August 36 Call @ 2.05

NET COST: 35.50 Stock – 2.05 Premium = $33.45 (35.50 x 100) – (2.05 x 100) = $3,345.00

BREAKEVEN: 35.50 Stock – 2.05 Premium = $33.45

MAX PROFIT:  (36 Strike + 2.05 Premium) – 35.50 = $2.55

MAX LOSS: 35.50 Stock – 2.05 Premium = $33.45

CALL AWAY % RETURN: 2.55/35.50 = 7.2% Return

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.