February 8th, 2010:
iShares Silver Trust (SLV)
January 2011 $20 call options
Current Price: $0.93
Options trading is extremely dangerous. The purpose of this message is to inform NIA members about a bet one of NIA's co-founders is making and to help educate NIA members about the risks and benefits of stock options trading. We are NOT suggesting that you buy or sell any options and we urge you to stay away from options if you have no options trading experience.
NIA is betting big that this past week's short-term decline in the paper price of silver was just a temporary wash out, before a huge surge in silver prices later in 2010.
One of NIA's co-founders purchased on Friday, 1,300 January 2011 $20 SLV call options at a price of $0.89. For those of you not familiar with stock options, we will soon be releasing an educational report for NIA members explaining what stock options trading is all about.
With his purchase of 1,300 January 2011 $20 SLV call options, NIA's co-founder is betting that the silver ETF, SLV will surge from its current price of $14.90 up to above $20 by the third Friday of January 2011. If (for example) on or before the third Friday of January 2011, silver is around $25 per ounce and SLV is trading for around $25 per share, the January 2011 $20 SLV call option will likely be worth around $5 per contract (each contract represents 100 shares). Our co-founder's investment of $115,700 would be worth $650,000, yielding a $534,300 profit. If however, silver is trading below $20 per ounce come the third Friday of January 2011, this particular option would likely expire worthless and our co-founder would lose his entire $115,700 investment.
Option premiums are determined by many different factors, one of the most important being time until expiration. If SLV were to stay at around $14.90 for the next few months, the premium for the January 2011 $20 SLV call option will likely drift lower from its current price of $0.93. If however, SLV were to rise to $25 sometime this summer, long before the January 21, 2011 expiration, the premium is likely to rise a lot higher than $5.
If you have no options experience, we strongly urge you to stay away from options trading because it could be very dangerous. Be ready for NIA's upcoming educational report on options trading.
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