Silver Options Explained

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Silver Options Explained

Silver options are option contracts in which the underlying asset is a silver futures contract.

The holder of a silver option possesses the right (but not the obligation) to assume a long position (in the case of a call option) or a short position (in the case of a put option) in the underlying silver futures at the strike price.

This right will cease to exist when the option expire after market close on expiration date.

Silver Option Exchanges

Silver option contracts are available for trading at New York Mercantile Exchange (NYMEX).

NYMEX Silver option prices are quoted in dollars and cents per ounce and their underlying futures are traded in lots of 5000 troy ounces of silver.

Exchange & Product Name Underlying Contract Size Exercise Style Option Price Quotes
NYMEX Silver Options 5000 oz
(Full Contract Specs)
American Calls | Puts

Call and Put Options

Options are divided into two classes – calls and puts. Silver call options are purchased by traders who are bullish about silver prices. Traders who believe that silver prices will fall can buy silver put options instead.

Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies, also known as spreads, can also be constructed by simultaneously buying and selling options.

Silver Options vs. Silver Futures

Additional Leverage

Limit Potential Losses

As silver options only grant the right but not the obligation to assume the underlying silver futures position, potential losses are limited to only the premium paid to purchase the option.

Flexibility

Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.

Time Decay

Options have a limited lifespan and are subjected to the effects of time decay. The value of a silver option, specifically the time value, gets eroded away as time passes. However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.

Learn More About Silver Futures & Options Trading

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Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

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What are Binary Options and How to Trade Them?

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Investing in Growth Stocks using LEAPS® options

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Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

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Day Trading using Options

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Understanding Put-Call Parity

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Understanding the Greeks

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Silver Options Explained

Silver options are option contracts in which the underlying asset is not silver per se but a silver futures contract.

The holder of a silver option possesses the right but not the obligation to buy the underlying futures contract at the strike price upon expiry. Like securities options this option will cease to exist once the option expires.

Where are Silver Options Traded?

Silver options are traded on the New York Mercantile Exchange (NYMEX).

NYMEX Silver option prices are quoted in dollars and cents per ounce and their underlying futures are traded in lots of 5000 troy ounces of silver.

Call and Put Options

Silver options are available in either calls or puts, if you expect the price of silver to rise you’d buy call options and if you expect the price to fall you’d buy put options.

You don’t have to limit yourself to buying calls and puts on their own however, you can combine them together to create more complex strategies known as spreads.

How to Trade Silver Options

Let’s assume that Silver is trading at a price of $11.30 per troy ounce. A NYMEX Silver call option with the same expiration month and a strike price of $11.00 is being priced at $0.7500/oz. Since each underlying NYMEX Silver futures contract represents 5000 troy ounces of silver, the premium you need to pay to own the call option is USD 3,750.

Assuming that by option expiration day, the price of the underlying silver futures has risen by 15% and is now trading at USD 12.99 per troy ounce. Your call option is now what’s known as in the money (ITM).

By exercising your call option now, you get to assume a long position in the underlying silver futures at the strike price of $11.00. This means that you get to buy the underlying silver at only $11.00/oz on delivery day.

To realize any profit from the trade you need to enter an offsetting short futures position for one contract of the underlying silver futures at the market price of $12.99 per troy ounce, resulting in a profit of $1.9900/oz. Since each NYMEX Silver call option covers 5000 troy ounces of silver, your gross profit from the long call position is $9,950. After deducting the initial options premium of $3,750 that you paid to buy the call option, your net profit for the trade will be $6,200.

In reality there’s no need to exercise the call option to realize your profit. You can simply close out the position by selling the call option back to the market. This is how 95% of options contracts are closed.

The above example doesn’t include any broker commissions. In the real world you’ll have to pay commission to your broker every time you execute a trade. These commissions are usually very small and shouldn’t affect your profit too much.

Silver Options vs. Silver Futures

You might be thinking, what’s the point of buying an options contract when you can just buy the underlying futures contract instead? Well there are distinct advantages to buying options over futures contracts. We’ve outlined a few of the major ones below.

1. Additional Leverage

You’d gain additional leverage buying a silver options contract compared to taking an open position on the underlying silver futures outright, since the premium payable is typically much lower than the margin requirement needed to open a position in the underlying silver futures.

2. Limit Potential Losses

Since silver options only grant the right but not the obligation to assume the underlying silver futures position, potential losses are limited to the option premium paid to purchase the option in the first place.

3. Flexibility

Options carry way more flexibility than using futures alone, you can easily combine different options to create complex spread strategies that are both more profitable and have higher risk reward ratios.

Conclusion

With the economy the way it is Silver is a good bet. You might have thought that silver trading was beyond you, but as you can see trading Silver options isn’t anymore difficult than trading securities options.

The only obstacle to trading Silver might be your broker not being able to oblige. Fortunately this is easily fixed by signing up for an account at optionsXpress who offer Silver options and futures through their standard platform.

2009 Mercedes SL 550 the Face Lifted R230 – Options Explained

Mercedes-Benz introduced the R230 chassis SL for the 2003 model year in the United States, the first SL class with a retractable hard top. Mercedes calls it the ‘5th Generation’ SL (300SL – W198, Pagoda – W113, R107, R129 and the R230). 7 years after the introduction of this new R230 body style it was time for a facelift, 2009 was the first model year for the lightly massaged R230 SL the car we’ll go over in this article. We’ll concentrate mainly on options and equipment, but a brief overview of some of the changes from the earlier models is important as we explore the 2009 Mercedes SL 550.

2009 SL 550 – Exterior – Body Work

The front and rear bumpers were changed, think, any plastic parts below the hood and front fenders. Depending upon the trim / option package, a couple of different looks were available. The rear bumper was also changed, as these plastic bits are easy to work with. The front grille was also redesigned, along with the headlights, now, much more angular than the previous look. Add to that slightly flared front fenders, but perhaps most significant and noticeable change about the 2009 and later R230 cars is the hood. Starting in 2009 the hood got a couple of raised ridges running from front to back, coupled with the new grille, head lights, fenders and front bumper, to my eye, these cars appear significantly more aggressive and sporty than earlier R230s.

2009 SL 550 Interior – Electronics

The interior of the car doesn’t look any different, seats, most controls, remain unchanged. AIRSCARF was new for 2009, fans built into the heardrests that could blow warm (or cool) air on your neck, supposedly extending the top down motoring season into the Fall a few weeks while still keeping you warm, if the windows are rolled up. It sounds like a gimmick, but it’s not a bad option. It gets a little too hot for me sometimes, but it’s there if you want it.

One of the best things about the 2009 SL 550 was the new COMAND system. Mercedes introduced a new COMAND system in most models across the product line in 2009. The navigation, Bluetooth and music options were vastly improved over the old system. It isn’t something that you necessarily notice when you peek inside the cockpit, but the later cars are MUCH easier to live with due to these better electronics. You get a 4 GB music register – meaning you can burn CDs into the car’s memory, lots of CDs, it has a 6 disc changer in the dash, you just feed 6 discs into the slot one after another. There is an SD card slot where you can insert an SD card full of music for more listening options and there is an aux jack and iPod connector under the armrest, it was also the first year for the USB music option, plug in a USB drive full of MP3s and start listening. Bluetooth capability is built in, no longer do you have to plug in a separate ‘Bluetooth Module’ (to the tune of another $500 with the MB parts department!) into the armrest in order to make your phone work (like you did with any MB model previously)… it’s all built in. Bluetooth streaming music wasn’t available in 2009, it would be 2020 until that arrived in the new ML class and then into other models. 2009 was also the first year I think they got VOICE CONTROL right. If you can figure out how to use it and stick to the rules, it’s a solid, convenient system for some basic tasks.

2009 SL 550 – Price

$98,500 Base MSRP (does NOT include $875 destination and delivery car which is a line item on every window sticker, so $99,375 is really more accurate). Add the fact that ‘base’ cars simply do not exist in dealer inventory, they all got some options, and who would want to special order a ‘Base Betty’ SL 550? They essentially all had price tags over $100,000 when new.

Basic 2009 Mercedes Benz SL 550 Specifications

  • Engine: 5.5L DOHC 32-valve V8
  • Power: 382 hp @ 6,000 rpm
  • Torque: 391 lb-ft @ 2,800-4,800 rpm
  • Transmission: 7-Speed Automatic
  • Acceleration: 0-60 mph: 5.3 seconds
  • Fuel Economy (CITY /HWY) 13 mpg / 21 mpg

2009 SL 550 Option Packages

Premium 1 Package (P1) – $3,750

  • Heated and active ventilated seats
  • ƒƒ AIRSCARFƒƒ (new for MY 2009)
  • Multicontour seats
  • Electronic trunk closerƒƒ (new for MY 2009)
  • Keyless-Go I don’t think that I’ve EVER seen a 2009 SL 500 without the P1 Package, almost every car got it.

AIRSCARF – Heated or cooled air via the head rest.

Trim Package – $1,510

  • ƒƒ Wood/leather shift knob
  • ƒƒ Wood/leather steering wheel
  • ƒƒ Premium leather

SL Wheel Package – $1,950

  • ƒƒ19” AMG 5-spoke wheels with high-performance tires
  • Sport steering wheel with black shift paddlesƒƒ
  • Smoke-color headlamps and tail lampsƒƒ
  • Silver front brake calipers with Mercedes-Benz letteringƒƒ
  • Perforated rear brake discsƒƒ
  • Paddle-shift “M” mode

Individual / Stand Alone Options:

Exterior Color Options – 2009 SL 550

While most Mercedes Classes carry a $700 – $750 up-charge for metallic paint, the SL class does not, with one exception. In 2009 there was an additional cost of $795 for Diamond White Metallic paint. Storm Red and Capri Blue cars were not available with red interior.

Interior Color Options

All SL 550s came with standard leather interior, MB Tex (Mercedes’ proprietary vinyl material), was not an option. The “Trim Package” (see above) included the Premium Leather option, available in the same 4 colors above, just a slightly higher quality leather.

Notice that SL interiors are two tone, except for black interiors, if the chosen interior color is black, everything is black. Upper panels on the doors and dash are a darker color to reduce reflections of the interior on the inside of the glass, ensuring better visibility. They think of everything, don’t they?

A 2009 Mercedes-BEnz SL 550 Silver Arrow Edition (after market window tint).

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