As the silver market finally bounced back, Muthu boy gazed at his gleaming coins with a grin. He leaned against the counter of his prata shop, seriously considering flipping the sign to ‘CLOSED’ for the afternoon to celebrate the windfall.
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I only break even at $84, because I paid $4 for the option.
Before expiry, the option still has time value and leverage. During this period, the effective leverage is roughly 5×.
So if silver jumps 20%, the option value can rise by around 100%, allowing me to sell it at close to $8 before expiry.
Take SLV 27 Feb call as an example:
Theta is 13.5 cents per day, weekends included
Last traded price: $3.10
Over the weekend (3 days):
$3.10 − (3 × 0.135) ≈ $2.69 theoretical value on Monday.
Now the dangerous part 👀
With ~7.4× leverage, if silver drops just 3%,
the option can fall to around $2.47 — that’s ~20% loss straight away.
To just break even, silver needs to move up ~2%.
That’s already asking a lot, just to get back to zero.
That’s why short-dated calls are brutal.
Better to buy longer-dated calls:
Less theta decay
More time to ride volatility
Easier mentally — you’re not fighting the clock every day
Time is your real edge in options.
Without time on your side, it’s easy to panic and end up making the wrong calls. @Ah_Meng
Great article, would you like to share it?
Great article, would you like to share it?