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3 Ways to Play the Boom in Silver Stocks

silver stocks - 3 Ways to Play the Boom in Silver Stocks

Source: Shutterstock

Silver surged this week as speculators rushed into the low-priced precious metal. Thursday’s volume in the iShares Silver Trust (NYSEARCA:SLV) surpassed 150 million, marking the most active trading session since last August. The euphoria is spilling into silver stocks as well, with some climbing double digits.

The culprit lies with Reddit investors, who are taking their newfound power and pointing it toward other stocks outside of GameStop (NYSE:GME). Whether or not their obsession with silver is short-lived remains to be seen, but there’s no denying that SLV and the cohort of silver-related stocks are heating up and boast compelling breakout patterns.

I’ve scoured the space for the best symbols to focus on. These are my three favorites:

  • iShares Silver Trust (NYSEARCA:SLV)
  • First Majestic Silver (NYSE:AG)
  • Silver Miners ETF (NYSEARCA:SIL)

The implied volatility in their options has exploded, bringing some interesting opportunities to those willing to build a derivatives trade. Let’s take a closer look.

3 Ways to Play the Boom in Silver Stocks: Silver ETF (SLV)

Silver (SLV) ETF with bullish breakout
Source: The thinkorswim® platform from TD Ameritrade
Three wood blocks spelling out "ETF". representing best etfs
Source: Shutterstock

It’s not really possible to separate silver and silver stocks. Since they carry a very high correlation, it’s extremely rare to see a bull market in one but not the other. Thus, the first and perhaps easiest choice to play the silver market’s sudden strength is to buy the metal directly using its exchange-traded fund.

Yesterday’s jump carried SLV’s price over its 20-day moving average, completely erasing the loss from the Jan. 8 distribution day that’s been hanging over the stock all month. The next upside target is $26 to $27.

Implied volatility is screaming higher alongside the stock. It reveals that speculators are bidding up the price of out-of-the-money call options to cheapen and leverage up their bets. We can use this to our advantage by building a strategy that involves selling them. A bull call spread that involves buying an at-the-money call and selling out-of-the-money should do the trick.

The Trade: Buy the March $25/$30 call vertical spread for $1.10.

First Majestic Silver (AG)

First Majestic Silver (AG) stock chart with bullish breakout
Source: The thinkorswim® platform from TD Ameritrade
two silver bars
Source: Shutterstock

Of the individual silver miners, none seems to have caught the crowd’s attention as much as First Majestic Silver. I looked back as far as possible and couldn’t find a single day that came even close to matching yesterday’s participation. Volume soared to 53.8 million shares, driving prices up to 39% higher on the session.

AG’s high short float seems to have made it a favorite among the WallStreetBets group. Fresh off their epic short squeeze victory in GameStop and others, it’s no wonder this is now their go-to metric for drumming up ideas.

The long-term chart of AG looks healthy. It’s incredibly overbought in the short run, so this is a higher-risk entry if people stop pressing their bets. You’ll have to decide if you want to wait for a dip and risk missing out if the stock continues to squeeze. Once again, the volatility characteristics make me favor a low-cost call spread.

The Trade: Buy the March $20/$30 bull call for $1.20.

Silver Miners ETF (SIL)

Silver Miners ETF (SIL) with bullish breakout
Source: The thinkorswim® platform from TD Ameritrade
A stock market ticker tape that reads "ETFs." representing international etfs
Source: Shutterstock

If you prefer silver stocks over the metal, but you’d rather not try to pick individual companies, then consider the silver miners ETF. It’s a basket of the top players in the industry. As such, it provides diversification and less volatility than a single stock like AG. But, if the industry really catches fire, SIL will provide exposure to further gains.

Because of its lower volatility nature, I suggest building a more conservative type of options trade – one that won’t require prices to jump as high to generate a profit.

The Trade: Buy the March $45/$40 bull call spread for $1.65.

On the date of publication, Tyler Craig held long positions in SLV.

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