The iShares Silver Trust (SLV) has put in solid signs of a major corrective low secured. Now with a daily uptrend in place and minimal wrong-footed, media backing for buying key technical support, it’s time to make some coin with a long call strategy with SLV Weeklys.
If you’re in need of an external support other than the technical variety to buy the silver ETF, be warned. There’s no fist-pounding mentioned here for how a weaker U.S dollar or other variable is acting as an excuse to buy.
But if you’re looking for a strong chart made even more desirable using SLV options to your advantage, please read on.
SLV Daily Stock Chart
Following a massive four-year corrective downtrend of some 69% and establishing a four-month double bottom in March, SLV has gone on to produce a daily uptrend over the past three months.
As of Tuesday’s close the silver ETF is at a critical support point that bulls would likely enjoy seeing hold. Technically and as the daily chart reflects, SLV is positioned at up-channel support and formed a hammer reversal candlestick on Monday.
If the hammer low in SLV fails, reversal bets and the up-channel are off the table. However, the uptrend is technically still in play as long as a pivot low develops above the prior late April low of $14.93 and holds.
With SLV also firmly in oversold territory based on stochastics and prior upswings of 10% to 12% over the course of two to three weeks in the silver ETF; bulls appear to have a solid risk-to-reward set-up.
In theory, SLV bulls are being presented with 1% to maybe 2% stock risk tied to a candlestick low like the current hammer in the silver ETF. At the same time and maybe in the not-too-distant future, this investor might be rewarded by a minimum of five or six times that risk if price memory stays true to the developing uptrend.
I purposefully used the word “theory” to make a point. In trading SLV, or any instrument for that matter, there is always the potential for gap risk upending our idealized stop loss when trading the underlying instrument.
The point of gap risk is brought home further if traders, both bulls and bears, simply review the silver ETF’s gap tendencies over the past couple months. One way around this type of unwanted contra-position risk is positioning with a SLV long call — if you’re bullish and agreeable to our technical thesis.
SLV Weeklys Long Call Strategy
Given the risk-to-reward profile and an expectation to be positioned for up to two to three weeks; the SLV Weeklys Jul 2 $15.50 call for 29 cents looks attractive.
This particular call is priced well as it gives the bullish SLV trader just over three full weeks to position for upside and ample time to profit based on the prior two legs higher within the silver ETF daily uptrend.
Additionally, the trader’s breakeven is $15.79. That’s just 3.5% higher and well-below the anticipated 10% to 12% if, as described, SLV stays true to its uptrend.
In the event the call is bought, risk is limited to less than 3% of SLV shares. This allows staying power versus the stock trader who is more exposed to bearish gap risk. And because this uptrend could still require another shake out or two of bulls trying to play a bottom before running higher, the SLV Weeklys look like a better way to make some coin in silver.
As of this writing, investment accounts under Christopher Tyler’s management own hedged positions in SLV shares and its derivatives. The information offered is based upon his observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
