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Minyan Mailbag: The Price of Optimisim


"Who" means more to me than anything these days.


Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.


I'm not sure what to make of this chatter, but apparently there was a size buyer of $10 December silver calls yesterday. The buyer also sold December $7 puts. Pretty optimistic position.

Minyan Brian

Hi Brian,

Very Optimistic or smarter than most (or more informed)??? I try not to do much with options - I buy them for leveraging my positions and buy them to hedge positions. I do NOT sell options. Sorry, that's just part of my make-up. I must always be in control of what I am buying or selling, and when. Sell an option and you lose that completely.

My Conjecture only -

I reckon he is selling the puts (very valuable) to finance massive leveraged calls at way out-of-the-money level. If it is unleveraged, i.e. 1 call per 1 put, then he is raising cash through premiums. At worst he is being forced to buy something he wants anyhow at strike minus premium. Nice enough. If it is a leveraged deal with no premium exchanged, the seller gets silver "put" to him at $7 or he has 10 (20, 50, ???) times the volume if it pops like the "zit" I expect. The risk is silver collapses in three months. Timing is everything as I have found to my chagrin recently. Was this a zero-cost collar?

Not enough info for me to make an informed comment but ... it looks rather unusual, given global circumstance. Disaster insurance for someone maybe??? Hedgers?

It also depends on the size of the bet versus the size of the wallet. How much premium are we talking?? A little 10 million dollar bet that silver goes nuts in the next quarter is nothing for many shops around town. But if I only owned 50 dollars, I wouldn't have the whole 50 on that bet!

I don't really care too much about strikes or maturities in precious metals options, but I do care about WHO's dealing them and at what implied Volatility (for low deltas especially). "Who" means more to me than anything these days.


p.s. What would an option guru like Succo think???

Laurie -

I think you have it right, although one should not be "afraid" to sell over priced options. Fear is the mind killer.

-John Succo

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