A strategy idea for options trading investors.

Over the past two months silver, as seen in the iShares Silver Trust (NYSE: SLV), has hammered out a solid base between $38 and $32. With last week’s breakout it seems gold’s volatile cousin may be ready to start trending higher again. While SLV may not experience a rise as meteoric as that at the beginning of the year, the path of least resistance at this point is higher. Following yesterday’s large sell off, as well as this morning’s gap down, SLV is providing an alluring ‘buy the dip’ setup.

In structuring an option position around this pattern I like the idea of selling puts. The cheaper price tag of SLV keeps the margin requirement low and with strike prices listed in $1 increments, traders have plenty of out-of-the-money options to choose from. Currently I’m stalking the SLV August 35 and August 34 Strike puts.

I like the idea of scaling into the position because we can’t predict the depth of SLV’s current move downward. Suppose you wanted to sell three Aug 35 puts. Rather than selling all three right now, you could sell one or two and then wait a few days in case SLV falls lower in price before entering the rest of the position.

Source:  MachTrader

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

Follow Tyler Craig on Twitter@TylersTrading.