Trade of the Day: iShares Silver Trust (SLV)

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October is off to a pretty rough start. Many traders are wondering if the current market woes will end soon or if it’s time to short. Right now, I notice a downward trend continuing and the potential for shorts and put options increasing. Today’s trade is to buy puts on a commodity some might favor in a declining market: silver.

I’m seeing interesting activity in precious-metal commodities. With the dollar gaining strength, gold and silver have sharply dipped in price. Take the iShares Silver Trust (SLV), for example. The ETF has been experiencing a pattern of lower lows recently, reaching a 52-week low earlier this week. The silver market has lost more than 10% since July 2013, sending SLV down to the mid-$16 level. I don’t see any reason for this trend to reverse in the coming weeks.

With this poor outlook for silver, I recommend buying in-the-money puts on SLV, which reflects the general trend and performance of the price of silver.

This commodity ETF also has a pretty low expected move of 4.2%, or $0.69. Any bounce to the upside in price should be used to enter a short position.  To maximize your profit, I recommend the following entry, target and stop prices for this option.

Entry: Buy the SLV January 2015 $17 puts for $1.15 or better.

Upside Exit: Sell the position if the price of the option hits $1.65.  This would be a 43.5% gain.

Downside Exit: Sell the position if the price of SLV hits $17.61.

Trade of the Day: iShares Silver Trust (SLV)

This position should be exited on Oct. 22 if the upside and downside exits are not hit.

Mike Turner is an engineer turned entrepreneur with more than 20 years’ experience in systems development and enterprise-level software applications and 15+ years in finance and stock market strategies. He is the founder of Signal Investor and Turner Analytics.

Mike’s background in finance, computer science and engineering provide a solid foundation for Signal Investor’s rule based trading approach. Turner Analytics provide members with access to the software Mike created and uses to make his stock, option and trading recommendations.Click here to get Mike’s unique take on stocks through technical and fundamental analysis.


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