Home › Forums › Closed Trades › [CLOSED -18%] SLW Fade
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July 3, 2016 at 2:45 pm #6274Steven PlaceKeymaster
Setup: Parabolic Short Fade
Entry Price: Above 25
Description:
Precious metals have been the best performing asset of 2016. I’m sure you could slap a reason on it but in my eyes… well, gold and silver were terrible in 2014 and 2015, it was time for them to run.
SLW is now 3 days above it’s 2nd standard deviation Bollinger Band. This generally sets it up nicely for a fade.
Given the strength we’ve seen in the gold/silver space, I expect this to pull into the 22 area and then slow down. That means this is a very quick trade setup.
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You must be logged in to view attached files.July 5, 2016 at 10:01 am #6318Steven PlaceKeymasterThis is a viable trade here, yet it makes sense to scale in. Silver futures traded up above 21 over the long weekend and it’s very possible those get tested again.
So here’s the trade:
Buy to open SLW Aug 26/22 put spread @1.80
ADD to the trade at 1.50
Sell all at 22
Stop out at 27
July 11, 2016 at 10:24 am #6396Steven PlaceKeymasterThe stock is squeezing higher, so I am going to add the second round of options here.
Buy to open SLW Aug 26/22 put spread @1.40
That puts my basis at 1.60, so I will sell the second half of this trade at 1.60 to work my basis down.
If SLW rallis another point and closes above 27, then I will exit for a loss.
July 11, 2016 at 12:03 pm #6397David LichtensteinParticipantSteve,
Can you explain how you determine the 1.40 debit? Is it what you calculate the debit should be at the entry price of $25 and at mid point of the spread, for example?
I am looking at implied volatility and last 30-day average, and it seems IV for SLV Aug options are running higher than average. Would Bear Calls also be reasonable here? I am trying to evaluate the risk of premium decay due to IV drop for the Bear Put choice. Thoughts?
July 12, 2016 at 1:27 pm #6419Steven PlaceKeymasterDave, for the 1.80 initial entry, that was calculated by analyzing the trade and what the price would be if/when SLW came into 25.
The 1.40 second entry was based off the market price after SLW did another gap and run higher.
As for risks involved with vega… well, they don’t matter nearly as much compared to the stock price action.
The total vega for a single spread is around 1.5. That means for every percentage point move in SLW, the position value will change by $1.40.
Now think about this… SLW IV is currently sitting at 47%, with a floor of around 45%.
Let’s say we hit that floor, that means a 2% point drop. That means theoretically, the value of the spread drops by about $3.00.
Now compare that to the delta.
A single spread delta is around 35, meaning for every $1 move in the stock you’ll see a change of about $35.
A single dollar move in the stock has a much greater effect than any change in the IV.
ALSO
From what I’m reading, you’re basically scared that this trade is a debit, not a credit.
Honestly, it doesn’t matter that much. Delta is delta. The time decay on the spread is not that great.
In fact, if the stock drops, the position actually becomes a LONG THETA position.
On top of that, I expect that the time decay in the 22 put we sold will be greater than the 26 put we bought. Not all options decay at the same rate.
That’s should show you the total rationale for the option spread I chose.
July 18, 2016 at 10:01 am #6449Steven PlaceKeymasterSLW is failing to really roll over, and is correcting sideways. It’s possible that a stop out trigger is hit this week, so make sure to stay disciplined to your stops.
July 25, 2016 at 10:55 am #6546Steven PlaceKeymasterClosing half at 1.60 to cut basis down.
Full Time Profits Order Ticket Type Asset Duration Strike C/P STC SLW Aug 26 Put BTC SLW Aug 22 Put Total Credit: 1.6 - This reply was modified 6 years, 10 months ago by Steven Place. Reason: added order ticket
July 27, 2016 at 9:42 am #6561Steven PlaceKeymasterThe stock has been rangebound for too long. The overbought condition corrected through time rather than price. If it rallies, the time decay will end up being a problem on the trade so I want to stop out here and look for another parabolic spike to short into.
Full Time Profits Order Ticket Type Asset Duration Strike C/P STC SLW Aug 26 Put BTC SLW Aug 22 Put Total Credit: 1 -
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