Volatility in the silver market and Silver Wheaton stock created the perfect opportunity to lock in profits today. My previous basis in the stock was $40.79 with a May $40 put. So I had 79 cents per share at risk with the possibility of making $2.21 per share if the May $43 call was exercised.
But today, SLW traded below $40 per share. I managed to purchase additional shares equal to the previous number that I owned with some being purchased at $38.90 and some at $39.30. I also purchased May $37 puts and sold May $40 calls on those shares. When added all together, the overall basis of all of my transactions (including commissions) works out to be $39.65.
This means that I have a guaranteed profit of 35 cents per share on half of my position! I simply have to wait until the third Friday of May to collect. Half of my position will be sold at $40 per share regardless since either the call will be exercised or the put will. Should SLW bounce back and trade over $43, I will make additional profit and all shares will be gone. If SLW trades down to $30 per share, then I will sell at $40 and could buy back to lower my basis further by averaging down with the shares I have left.
Of course what happens remains to be seen, but the fact is that I have a plan for what to do regardless of which way the market is heading. I am reacting to the prices not anticipating them. I love the fact that volatility can guarantee profits and the lack thereof simply requires patience.