SLV – Ratio Frontspread

Looking at a PUT ratio frontspread on SLV, with the intention of purchasing the ETF if it heads down towards the $25 range, while making some money on the way down.
Click here to view PL diagram & charts.
Long 10 Nov 27 puts
Short 20 Nov 25 puts
Credit around 9c – essentially nothing (will probably cover the transaction costs).
SLV appears to have strong support around the 25.5-27 range & then 22.5-23.5 area.
Looking to buy SLV if it gets to $25. If that happened, then would
– Look to close the embedded vertical for a profit (Sell to close 10 Nov 27 puts (ITM), Buy to close 10 Nov 25 puts)
– Leave 10 naked Nov 25 puts, which can be exercised
The profit from the sale would reduce the cost base well below 25.
If price moved higher, then would take no action – all options would expire worthless – the initial credit can be kept.
One can also write naked puts to purchase the underlying. The initial credit would be higher & transaction costs lower. However, the break even would be higher as well compared to the frontspread & max profit potential lower. If the bet is that SLV would blow through the support at 25 and reach the 23 level, then it might be better to simply sell the 23 puts or consider lower strikes for the frontspread.
This entry was posted in Commodities, Options, Ratio Backspread, Silver. Bookmark the permalink.

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