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Silver Likely Trading Sideways into Year-End

Create your own silver lining with this instant-income option trade


Within the commodity space, oil appears to be the current stomping ground of the bulls.  The last two months have seen buyers flock to the energy space, leaving gold and silver to languish in the land of sideways congestion.

While everyone’s favorite inflation hedge (gold) remains firmly entrenched in a weekly uptrend, its more-speculative cousin (silver) seems vulnerable.

The past few months of consolidation have formed a symmetrical triangle in the midst of a longer-term downtrend in the Silver ETF (NYSE:SLV).  It’s fair to say the path of least resistance is sideways-to-lower at this stage.

To exploit the continued neglect of silver by market bulls, how about selling a bear-call spread?

The bear-call spread consists of simultaneously selling to open a lower-strike call option while buying to open a higher-strike call in the same expiration month.  The trade is entered at a net credit, which represents the maximum potential reward.  The maximum risk is limited to the distance between strikes minus the net credit.

With only a few weeks remaining in the December expiration cycle, it would be prudent to use January options in structuring this trade.  Suppose we enter an SLV January 34-38 bear-call spread by selling to open the Jan 34 Call while simultaneously buying to open the Jan 38 Call for a total credit around 53 cents.  The max reward would be limited to $53 (53 cents x 100) and the max risk would be capped at $347.

The sale of this call spread can be looked at as a bet that SLV will not rise above $34 by January expiration.

Source:  MachTrader

At the time of this writing Tyler Craig had no positions on SLV.

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