Silver Wheaton: Get In At $20 Or Grab An Extra 13% In 7 Months

| About: Silver Wheaton (SLW)

Selling naked puts is a great way to purchase shares in companies you like at a predetermined price. In essence, you are getting paid to put in a "limit order."

Benefits associated with selling puts

  1. In essence, you get paid for entering a "limit order" for a stock or stocks you would not mind owning.
  2. It allows one to generate income in a neutral or rising market.
  3. Acquiring stocks via short puts is a widely used strategy by many retail traders and is considered to be one of the most conservative option strategies. This strategy is very similar to the covered call strategy.
  4. The safest option is to make sure the put is "cash secured." This simply means that you have enough cash in the account to purchase that specific stock if it trades below the strike price. Your final price would be a tad bit lower when you add the premium you were paid up front into the equation. For example, if you sold a put at a strike of 20 with two months of time left on it for $2.50; $250 per contract would be deposited in your account.
  5. Time is on your side. Every day you profit via time decay as long as the stock price does not drop significantly. In the event it does drop below the strike you sold the put at; you get to buy a stock you like at the price you wanted. Time decay is the greatest in the front month.

Suggested Put Strategy for Silver Wheaton Corp

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A bottom is usually in place, when the recent lows are tested on lower volume. It traded down to $22.94 in May, so a pullback to the $22.50-$23.00 ranges on lower volume would be a decent sign that a bottom was in, provided it did not close below these levels on a weekly basis. A weekly close below $22.50 would indicate that it could potentially test its two year lows in the $18.50-$19.00 ranges. On the other hand, a weekly close above $30 would be a bullish development and should result in a test of the $36-$38 ranges.

We would wait for a test of the $23.00 ranges at least before putting this strategy into play. The Jan 2013, 23 puts are trading in the $2.02-$2.05 ranges. If the stock pulls back to the suggested ranges then these options should trade in the $3.00-$3.20 ranges. We will assume that we can sell this put for $3.00. $300 will be deposited into your account for each put sold.

Benefits of this strategy

If the stock trades below the $23.00, the shares could be put to your account. If this occurs, you will end up getting into this stock at a much lower price. Your final price when the premium is factored in will work be $20.00 per share. If the stock is not assigned to your account, you walk away with a gain of 13% in seven months.

Your potential Risk

The only risk factor is that you have a change of heart after selling the puts. Perhaps your outlook has changed and you feel that the stock could trade well below the strike price. In this case, you can roll the put. Purchase the put you sold back and sell new slightly out of the money puts. Your break-even point for this trade is $20.00. You will only start to lose money when the stock trades below $20.00

Company: Silver Wheaton (NYSE:SLW)

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Brief Overview

  1. Short Ratio = 1.3
  2. Cash Flow 5-year Average = 0.62
  3. Profit Margin = 74%
  4. Quarterly Revenue Growth = 26.20%
  5. Quarterly Earnings Growth = 20.5%
  6. Operating Cash Flow = $ 663 million
  7. Beta = 1.36
  8. Levered Free Cash Flow = 353.38M
  9. 5 year EPS growth rate 39.8%
  10. 5 year sales growth rate 39%
  11. Sales vs 1 year ago = 72.4%
  12. Long term debt to equity = 0.02


  1. Net Income ($mil) 12/2011 = 550
  2. Net Income ($mil) 12/2010 = 290
  3. Net Income ($mil) 12/2009 = 118
  4. Net Income ($mil) 12/2008 = 18
  5. Net Income Reported Quarterly ($mil) = 147
  6. EBITDA ($mil) 12/2011 = 616
  7. EBITDA ($mil) 12/2010 = 334
  8. EBITDA ($mil) 12/2009 = 159
  9. Cash Flow ($/share) 12/2011 = 1.72
  10. Cash Flow ($/share) 12/2010 = 1
  11. Cash Flow ($/share) 12/2009 = 0.47
  12. Sales ($mil) 12/2011 = 730
  13. Sales ($mil) 12/2010 = 423
  14. Sales ($mil) 12/2009 = 239
  15. Annual EPS before NRI 12/2007 = 0.37
  16. Annual EPS before NRI 12/2002 = 0.33
  17. Annual EPS before NRI 12/2009 = 0.38
  18. Annual EPS before NRI 12/2010 = 0.83
  19. Annual EPS before NRI 12/2011 = 1.55

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Dividend history

  1. Dividend Yield = 1.3
  2. Dividend Yield 5 Year Average = 0.12

Dividend sustainability

  1. Payout Ratio = 0.09
  2. 3. Payout Ratio 5 Year Average = 0.03


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  1. Next 3-5 Year Estimate EPS Growth rate = 22.99
  2. ROE 5 Year Average = 13.09
  3. Current Ratio = 5.03
  4. Current Ratio 5 Year Average = 2.99
  5. Quick Ratio = 5.03
  6. Cash Ratio = 5.01
  7. Retention rate = 91%


Selling puts is one of the better methods of getting into a stock you are bullish on. You either get in at a lower price, or you get paid for trying to.

EPS and Price Vs industry charts obtained from A major portion of the historical/research data used in this article was obtained from Options tables sourced from Earning estimates and growth rates sourced from

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. If the stock moves down to the stated ranges in the article we will most likely put the suggested strategy to use.

Disclaimer: It is imperative that you do your due diligence and then determine if the above strategy meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware