Volatility Creates Opportunity to Lock in Profits


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.