iShares Silver Trust: SLV Is a Silver Lining in This Gold Rush

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The newfound love for gold isn’t just benefiting the yellow metal. Silver has surged alongside its shiny cousin and is staging its own trend reversal attempt.

SLV: A Silver Lining in the Gold RushThe iShares Silver Trust (ETF) (SLV) leaped more than 15% off its lows earlier this month before finally succumbing to profit-taking. And therein lies opportunity. Would-be silver buyers should find the current dip quite attractive.

First, let’s chronicle the ongoing relationship between gold and silver. The accompanying chart reveals the SPDR Gold Trust (ETF) (GLD) alongside SLV (gray area on the chart below). The twin precious metal funds have been fast friends of late.

The correlation between the two has been firmly positive, with a current reading of 0.86. For the uninitiated, that means GLD and SLV virtually always move in the same direction. Interestingly, gold has been able to maintain the bulk of its recent gains while silver tumbled last week. I suspect such a divergence will be transitory.

If you think gold remains in demand, it stands to reason that SLV has a strong chance of remaining aloft.

GLD-SLV

Source: Stockcharts.com

A close inspection of the silver ETF’s chart reveals a potential support level at the $13.75 level. For much of the December/January time frame, $13.75 acted as resistance, halting multiple rally attempts in their tracks. Now that we’re perched above this zone, it’s likely to provide support.

The 50-day moving average also resides in this area, providing further reason for buyers to congregate in this area.

SLV

Source: OptionsAnalytix

The SLV Trade

Given the lackluster recent performance of silver versus gold of late, traders should consider taking the higher-probability route with any SLV trades. The current pullback provides an interesting spot for short puts.

Sell the SLV April $13.50 put for 26 cents or better. The max reward is limited to 26 cents and will be pocketed if SLV sits above $13.50 at April expiration.

By selling the put, you obligate yourself to buy 100 shares of SLV at $13.50 (really, $13.24 on account of the 26 cent premium) if it sits below $13.50 at expiration.

While 26 cents may not sound like a large sum, the margin requirement (i.e. the cost) of the trade should be well below $260 so you’re looking at a 10% return on the initial cost.

At the time of this writing Tyler Craig owned short puts in SLV.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/02/slv-etf-silver-lining-of-gold-rush/.

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