A Silver Options Trade for Feb. 18. Also, Baseball…

Silver Prices

We’re supposed to be about 10 days away from pitchers and catchers reporting down here. But there’s still no deal in place between Major League Baseball and the players’ union. If they can’t figure things out soon, spring training is going to be chaos.

Given that the markets have been this chaotic, it’s going to be very difficult to mentally manage two of my favorite things. Trading and baseball. Here’s hoping they can reach a deal. Then I can get back to rooting for a team that will be lucky to win 50 games in 2022 (Baltimore). 

A Baseball Stock

I’m interested in how any prolonged standoff between these teams might impact the food and beverage hospitality sector. Remember that we’re entering the third year of complete unpredictability for the companies that have ties to live sports and events. 

Delaware North is a private company in the space. They’re in charge of shops and sales at Oriole Park at Camden Yards in Baltimore. But Aramark (ARMK) is public and serves more than 100 million people a year across the United States. Pay very close attention to Aramark. It’s bouncing off its 52-week lows in recent weeks and trying to climb back. 

If there’s any significant announcement, some traders might look to squeeze out gains on the headline. It’s worth adding to your watchlist, even if you don’t really care about baseball. Or you’re like me and your team is just… bad.

A Silver Lining

One of the things that I have noticed over the last year is the significant drop in the markets that comes right around expiration. Now, I’m not a pattern trader and I’m not a person who believes in coincidences. But if we go back to March of 2020, we can see a lot of volatility and a lot of selling during the week of the “Third Friday” every month.

Remember, when it comes to options trades, the third Friday of each month is the primary options expiration date for most traders. Yes there are trades available on many other days in the month. But, that Third Friday tends to have the most active and liquid options chain. 

At the same time, I’m noticing a rather obvious flight to safety during that Third Friday in the form of gold or silver. Right now, silver stocks and ETFs aren’t as volatile as the tech stocks that are taking a bath. So, I look at the iShares Silver Trust (SLV) as a possible low volatility, lower risk, high upside trade. 

Let’s Talk Numbers

I like to go long on silver whenever it dips under a per-ounce price of $22.50. So, I’m looking at the February 18, 2022, $21 call option for about $0.35 or less as a more speculative trade. But you can also benefit from the leverage of options to buy calls that are “in the money”.

Instead of buying 100 shares of SLV for $20.70 – for a total cost of $2,070, you can purchase a single “in the money call” at $17 for a fraction of the price. The $17 call currently trades at $3.70 to $3.75, meaning that you can purchase a contract for 100 shares at $370 to $375. That contract gives you the right but not the obligation to purchase 100 shares at $17 on or before the expiration date. 

If the price pulls back to $300, then you can cut your losses, but that would imply that the SLV would be at $20. We haven’t seen it at that level since 2020. With inflation still grinding away, silver is a very attractive trade right now due to its commercial value AND store of value.

If the SLV climbs to $21.50 by Feb. 18, then the contract would likely be worth about $4.50. That would represent a nice little 20% gain on your money in less than 15 days.

I think it’s worth the risk/reward because I’d be content to take control of those shares regardless of the outcome. If you want to speculate, the $21 calls are riskier. But the percentage gains might be higher if the trade works out. Either way, keep your eye – ALWAYS – on that $22.50 price level per ounce of silver as an entry point. It’s served me well as a post-COVID trade.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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