A strategy idea for options trading investors.

TRADE COMMENTARY:

With a potential deal in Greece in place and the looming threat of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) having either debt problems or needing to roll over, real assets are where investors will flock to, rather than paper debt. Silver has been a favorite of ours for over a year because it has industrial uses, unlike gold. We believe that precious metals should be 5% — 10% of any portfolio.

UNDERLYING:

IShares Silver Trust (NYSE: SLV) invests in 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: July 5, 2011

STOCK/INDEX: SLV

STOCK PRICE: $34.00

OPTION PLAY: Covered Call

BUY STOCK: 100 Shares @ 34.00

SELL CALL: 1 October 37 Call @ 1.50

NET COST: 34.00 – 1.50 = $32.50

(34.00 x 100) – (1.50 x 100) = $3,250

Stock – Premium Received = Net Cost

BREAKEVEN: 34.00 – 1.50 = $32.50

Stock – Premium Received = Breakeven

MAX PROFIT: (37 + 1.50) – 34.00 = $4.50

Strike Sold + Call Premium – Stock = Max Profit

MAX LOSS: 34.00 – 1.50 = $32.50

Stock – Call Premium = Max Loss]

CALL AWAY % RETURN: 4.50/32.50 = 13.8% Return

Max Profit / Net Cost = Call Away 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.