Today I sold my Silver put option that I bought for 0,54 USD/oz on April 21 2011. I sold it for 3,62 USD/oz, or a profit of 567% on my invested capital. I have decided to take profit because silver post-top corrections after parabolic moves have been on average 30% (please refer to the image below). So far, silver has declined 30%, so I believe silver might correct and go up before going down hard again. I believe the direction of silver will be down because broken parabolas don’t recover fast if they ever do. I believe silver will recover and even exceed the 50 USD/oz high, but that will take long time.
Post-top corrections of silver
The silver put option was a position in my trading account. A speculative play that I make with less than 10% of my total trading account size. I use put options when I detect a parabolic rise of an asset. The options limit the possible loss if I’m wrong, but they also offer me opportunity to leverage my trade. I always buy out-of-the money options, so I pay cheap premium for the option. As after parabolic rise, I do expect huge correction, I prefer to buy cheap out-of-the options and risk less capital for a high return, if I’m right. I also buy the options for a short period of time. Usually I buy options for few months, so they are cheap. In this case my option was bought until August 1 2011.
Summary: Silver put option bought on April 21 2011, for 0,54 USD/oz, with silver price strike 35 USD/oz, and expiration date August 1 2011. The silver option was sold on May 5 2011, for 3,62 USD/oz or a 567% ROIC.