Don’t let this week’s downturn fool you: The precious metal run is alive and well. Gold and silver are galloping and just needed a little rest. And let’s be honest, it’s well deserved.
The iShares Silver Trust (ETF) (SLV) is now up 27% since bottoming last December. Resistance levels aplenty have been demolished, placing SLV in a bona-fide weekly uptrend for the first time in ages. Bottom-fishers have finally caught what could be the big one.
On the technical front the action looks as bullish as can be. The moving averages are all stacked on top of each other showing strength on all time frames. Momentum indicators are backing buyers with confirmation signals galore.
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Which is to say silver’s budding uptrend has increasing momentum. The RSI indicator powered into overbought territory reaching its highest levels in two years.
That, my friends, is a good omen.
But what of volume? Oh, we got volume, baby. Accumulation days pockmark the landscape in growing numbers. Big boys are piling into the silver mine and they aren’t afraid to pay up for the shiny stuff. Sure, SLV could pullback for a while yet, but this dip is a buy.
Turn Silver Into Gold
One thing the silver ETF has going for it in the options market is high implied volatility. It’s one of the only funds boasting high volatility these days. And that means option sellers are being rewarded handsomely.
Couple that with the low price tag of SLV and we’ve got an attractive naked put play on our hands. And, bonus, even if you’re wrong this put play will allow you to buy SLV at a discount from its current price.
Sell the June $15.50 put for 23 cents or better. The reward is limited to the initial 23 cents and will be captured if SLV is above $15.50 at expiration.
While 23 cents may not sound like a lot, the margin requirement (i.e. the cost of the trade) is a lowly $230, so we’re talking about a 10% return here with a high probability of success. Not too shabby.
The risk comes in the form of your obligation to buy 100 shares of SLV at $15.50 if the put sits in the money at expiration. Since you received 23 cents your true cost basis is actually $15.27, which may not be a bad spot to be buying silver anyways.
At the time of this writing, Tyler Craig held short puts on SLV.
