Market Curiosity: Exploring Markets And Systems

March 3, 2011

SLW – Part 2 of the silver and SLW campaign -36%, +41%, -3%

Filed under: +26 to +50%, -0 to -4%, -25 to -49%, Long Calls, Mistakes — Tags: , — Jeff Fitzmyers @ 12:29 pm

Part 1: SLW – long short term and long term calls -4%, +60%, +65%, -15%, +53%

Open positions:
June 60 calls for 0.31.
June 45 calls for 4.35.
July silver 60 calls for 0.042.

Earnings to be reported after the close. If you sell a product for $30 that cost you $4 and you only have 23 employees, earnings might be okay — except for things that come up like HL’s skeletons.

It will be interesting to see what happens. Upside targets of around 45.12 and 46.67 provided by Rick Ackerman’s method. If price open’s gap up it might be time to sell the 45 calls? If price opens lower with a gap – that will be an interesting decision.

+ SLW has a good backtest on the December high.
+ At all time highs with good fundamentals.
+ Volume keeps rising.

References
+ The obvious and GARGANTUAN silver opportunity
+ Surveying the playing field: fortunes can be made or lost in the next month or so, and sent to PCH

March 5: Brian Hunt’s Market Notes showcases SLW.

Our friend Jeff Clark of Casey Research has commented that Silver Wheaton is such a terrific silver play, we can use it to judge the severity of a precious metals mania. If gold and silver enter a mania phase, Silver Wheaton will be the stock magazine publishers throw on their covers… it will be the “must own” stock discussed at cocktail parties… and folks will talk about Silver Wheaton’s royalty stream like they talked about Cisco’s networking sales back in 1999.

That is what I am betting on.

March 8: Steve Sjuggerud on SLW: Up 40% in Seven Weeks, Still Room to Double

SLW has a fair number of gaps, and I did not sell this one. Usually when a move is rather extended to the upside and there is a gap on the open, it’s a good time to sell. But not always, especially if price is not extended. I did not sell at point 10 because:
+ I want to keep the position despite daily price movements, unless they are very bearish. (Yesterdays bar did not even take out the low of the bar before it. Compare that to point 1 and 2. Point 4 is a little different because it might have received support from the 10 ema.)
+ Price is not extended compared to the the old high at point 2. (definitely extended compared to the recent bottom mid February.)
+ The 2011 backwardation has been following 2008 closely. That implies price can go up for at least 5 more days with minor corrections.

The other reason I want to hold onto the position is silver really could explode up at any time. Among other things, the stream of rumors about JPM offering cash premiums to not take delivery from the COMEX is continuous. Mr Chapman, about 1.5 minutes in, is saying premiums were at 80%. IF true that puts the real price of silver at around 65 frn’s/oz. Then add backwardation, the lack of Silver Maples, funky warehouse stats, etc, etc… One could sell the gap and be chasing price big time to get back in. Maybe that is a good plan? If every major gap was sold and bought back 1-2 days later, that would probably cover the loss of having to chase price. But I’m not at the computer all the time. So I don’t want the stress.

Note that usually when price gaps up, it just heads down. None of this bouncing back stuff after 10 minutes. If silver really is bullish, SLW could open up, and just start accelerating up 15% in a short amount of time.

March 10: Sold June 45 calls -36%. Will be updating the gap info above and point out the psychological blind spot. In summary, the account just gave away 5 points. The rational for not selling the gap up was having to buy back at a higher price. If if I that happened, would it take 5 points to do it? Probably not. I don’t have good enough rules for dealing with gaps. Will update this weekend.

March 11: Was doing other things so missed the gap down open. Will wait for a pullback on the 60 min chart. I was thinking last due to the big gap, it might take a few days to get a good bottom in. Nope!

SLW: Dividends could rise to as much as 50% of cash flow

March 23: Long June 46 (2.22) and 65 (0.23) calls 4 days ago. The 65 calls are a bet on a big price run up and will have to be closed if price starts to stall out. I think they were expensive and expire rather soon considering how out of the money they are. But, if silver really starts to run, it’s much better to have exposure to a large number of shares rather than just exposure. The 46 calls were rather out of the money considering what I normally like to do (at the money, or one strike out of the money), but they are already rather profitable.

I sold 3/4 of the June 60 calls (+25%) in order to avoid riding a drop down to 33-36. I doubt that would have happened (famous last words), but I would rather reenter than sit through a major drawdown “hoping”. I obviously was not trading that correction well 🙂 And SLW is still very overbought on a monthly time frame. Really need to learn to sell large gaps up when price is extended.

I still entertain the notion that SLW will be the biggest momo stock ever.

April 14: Sold all the June 60 calls +58% on Tuesday since price looked to go lower. So the average is +41%. I can’t easily find what I sold the June 46 calls for, but it was a profit. But I will drop it since I got into June 47’s that I did not list here (so I don’t keep official track) that I sold in a debacle at a loss. Sold the June 65’s at -3%. That was silly. Too expensive, too far away, and not enough time until expiration.

I did not really preform profitably with the trades in this post. This is one reason I got flat on almost everything on Tuesday.

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