Profiting from Precious Metals Seasonality QE3, Euro Zone Debt with SLV Options.

I will briefly discuss a speculative trade which intends to capitalize on the seasonality of precious metals, the possibility of QE3, further Euro Zone instability and the re-test of and breach of $50/oz silver.   While I wrote this Sunday, by the time I went to edit it, trading on the Globex has backed off an initial spike to $44.00/oz.  So it is very likely we will open higher in New York. 


 SLV - Jan21 2012 Call – 40.00 strike @ 5.75
Fridays open Interest for these calls was 70,350 with volume at 6,838

High - 5.75
Low – 4.75
Delta - 0.613
Gamma – 0.035
Implied Volatility – 45.26%
Break-even - $45.70

While this is a high premium bet on $45.70+ SLV before January 22nd, we may open higher and close higher today than when I thought of recommending the call.  I part, for this reason, I like the Jan19 2013 -50 strike LEAPS currently @ Bid: $5.55 and Ask: $5.90, leaving much more room for error and I find the time value to currently be under-priced in relation to my price projections.

So if you miss the short term action, SLV LEAPS can provide a big buffer of safety during large scale market declines, as we have seen firsthand in the last month.  They also can be a wonderful speculative play in the medium term.  Risk capital required. 

Disclosure: The author has long positions in SLV options Oct 22 2011 - Jan 19 2013.

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