Wed May 10, 2006: Risky Silver Options (AMEX-SIL)

Option investors looking to get a piece of the action in the silver market might be interested in selling covered calls on Apex Silver Mines (AMEX-SIL). The stock has recently undergone a big correction due to worries about government controls in Latin American countries, and the options are currently paying a relatively high yield income.

For example, the June 17.50 covered calls offer a return of 10.2% if the stock is unchanged at expiration Friday June 16th. If the stock gets called away the total return would be 12.1%.

Is it worth the risk?

In my opinion, no it is not. The covered call returns are attractive but if the Bolivian government seizes company assets the stock could potentially lose most of its value. I would look elsewhere for covered call opportunities where the underlying stock has less downside risk.

Until next time, best of luck with your option investments!