This Is Why We Trade Options

Since we launched Trading with Larry Benedict, I’ve shared countless examples of how I go about my trades.

The reason I do that is simple…

I want to show how we put my mean reversion strategy into action using options. I believe options are one of the greatest tools ever for retail traders.

Of course, we don’t always get our trades right. But over time, our winners outnumber the losers, and we end up with solid profits.

Today, I want to share another trade that reinforces how useful options can be. And no beating around the bush, this trade was right up against it for a time.

So let’s see how things panned out…

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A Bigger Bubble Than Tech

Much of the market’s focus over the last year was on Big Tech. Many (including me) have remarked on the bubble forming amid the excitement about AI. Yet this year, all that hype was soon overtaken by another asset class…

Gold and silver both made serious moves in 2025. Then things accelerated in 2026. By last week’s peak, gold and silver were up 30% and 70%, respectively, year-to-date (YTD). (And we were still only in January!)

But throughout my four-decade career, I’ve seen plenty of bubbles and frenzies. They all finish the same way.

There were no fundamental reasons for gold and silver to be trading at such crazy highs. It would only take the right catalyst for them to topple over.

One thing I look for is diverging patterns. When a stock or commodity is rapidly rising alongside signs of slowing buying momentum, that can often precede a tumble. Eventually, falling momentum pulls a stock or commodity lower.

That pattern was developing with silver. So on January 14, we opened a put option trade on iShares Silver Trust (SLV). (A put option typically increases when the underlying stock falls.)

Leading up to our trade, you can see silver’s rapid acceleration. Meanwhile, the Relative Strength Index RSI was making a lower high (red line), pointing to buying momentum waning. Check out the chart…

iShares Silver Trust (SLV)

Source: eSignal

After first opening the trade, things went against us. Silver resumed its climb as buying momentum returned, pushing SLV much higher.

Had we been short the trade via stock or futures, we would have been stopped out for losses. That’s why options are my favorite way to profit from a downside move.

When buying options, the most I can lose is the premium. In this trade, we paid $3.83 per option contract. (That means we were risking $383 per contract, since a contract is for 100 shares.) For that clearly defined risk, we gained access to what turned out to be a highly lucrative trade.

Taking Profits

Silver’s reversal finally hit last Friday (green circle). The RSI reversed sharply from overbought territory, causing SLV to tank. That propelled our trade into good profits.

Take another look:

iShares Silver Trust (SLV)

Source: eSignal

We exited our option at $6.10 (or $610 per contract). That represented a 59.5% gain in 16 days. (Did you take part in this trade? Share your experience with feedback@opportunistictrader.com.)

As always, we need to remember that options use leverage, so they amplify both profits and losses. Options also expire, so we have to get the move we’re expecting within a certain window.

If the move doesn’t play out soon enough, we run the risk of our option expiring worthless. That’s why careful position sizing is vital for these trades. Options’ defined risk (which I mentioned above) enables us to trade only what we’re comfortable with.

As you can see, using options enabled us to stay in a trade that didn’t immediately go our way. But in the end, our patience paid off handsomely.

If you’d like to learn more about the important market signals I’m watching now so you can get in on our next trade… then be sure to go right here to watch my latest briefing.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict

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