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My technial indicators just beeped at me, and I put on a PURE DIRECTIONAL AND SPECULATIVE trade:

 

Buy Aug 2014 15 SLV Calls @ 3.50.

 

SLV currently at 18.40.

 

Break even 18.50.

 

The technicals I watch on silver seem to indicate that silver is reaching its floor.  If a bounce comes, you can make a very nice return.  Even moving up $1.00 leads to above a 25% return.  (Of course a dollar move down leads to outsized losses).

 

However, between now and August expiration, the odds of SLV bouncing off the current levels is quite good.  Even if the current downtrend continues you can either average down (I typically average down once) or just hold and hope for the bounce.

 

PLEASE NOTE THIS IS A HIGHLY RISKY AND HIGHLY SPECULATIVE TRADE.  I have a portion of my portfolio (currently about 15%) that I allocate to such trades.  If SLV stays below 18.50 between now and August, you stand to lose quite a percentage. 

 

Feel free to ask any questions.

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Thanks for sharing Chris - and like Chris mentioned, it is posted in directional and speculative trades forum for a reason.

 

Since those calls have a delta of 0.90, it is a pure leveraged bet. If you want to be more conservative, you can do a spread instead.

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And what kind of spread would you recommend? I also think a bounce is possible, but I also believe that by August the metals will take a final plunge, but I wouldn't be averse to trying to play a bounce. But considering how often I've picked the wrong direction on purely directional trades, I'd like to try something more conservative.

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There are a lot of options. If you believe there will be a quick bounce, then long call is a better choice. If you are ready to give up some of the upside potential for some downside protection, you can go with something like 16/18 spread. Then if SLV stays above 18 by August, you still get around 40% return (but you need to wait almost till expiration to realize that return). But you will have protection down to ~17.50. And you can buy back the short call if SLV goes down and wait for a bounce. 

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As Kim noted, the problem with a spread is having to wait until closer to expiration, which can catch you.

 

For instance, if you opened the 16/18 spread and got a bounce to a 19.50 your profits will be fairly small (and depending on your commissions might not make anything).  Whereas if you're at 19 something near expiration, you'll do much better. 

 

Whereas on the pure long call, you can cash in on ANY bounce between now and August.

 

Now if you think a bounce is coming next week, you can open the 18/18.5 call spread for right around .25.  If you get a bounce above 18.5 next week, you can turn a quick 80%-100%.

 

That said I HATE trying to time the bounce, or the floor.  I personally believe this is the floor, or close to it, and there will be a bounce sometime in the future.  I gave myself four months to be right. 

 

If you want even longer to be right, just go buy the January 2016 (yes 2016) 11 strike for $7.80 or so.  You then have just over two years to catch a bounce.  Returns will be a little smaller, but its a lot safer.

 

There's advantages and disadvantages to all three (short term call, longer term call, or spread), but in ALL of them it is speculative directional bet trade -- which means risk.

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Hi Chris, do you have a stop in the stock price where you would exit the trade if the level was breached?  I'm trying to determine my maximum risk.

 

No I don't because the long term floor (4 years) is $17.40.  If things got that low in the next 60 days, I would just average down. 

If things got REALLY bad (2008 levels), and the price broke 15 and headed to 13, I would then buy as much as the January 2016 DITM calls as I could afford. 

 

The 2008 prices don't support market demand.  Unlike gold, silver is actually used in industry.

 

This is a back of the napkin calculation, but if the amount of silver currently used in industry drops 30% (due to 30% decline in the economy), and NO silver was being used for currency, speculation, jewelry, or a value store (e.g. gold), the price shouldn't ever be down at the 2008 levels.  (for someone who REALLY believes that position see http://www.financialsense.com/contributors/ryan-jordan/silver-industrial-demand-best-yet-to-come).

 

Could it happen, sure.  If I average down because SLV drops to the mid to low 17s, at that point I probably will put in a stop-loss.  If the stop-loss is hit, then I'll be out of the current positions and re-enter the long dated January 2016 puts at the lower level.

 

Again, highly speculative, high risk position.

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Thanks. Looks very good entry point. From charts it looks perfect setup that anybody can ask for.

Will enter tomorrow 

I agree, just be sure to position size accordingly, if we (e.g. me) are/is wrong, you can have large losses.

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Chris,

 

Good afternoon.

 

Could you give me any incite into the technical analysis/indicators you use and any books or web sites you would recommend?

 

Thanks!

 

Richard

 

Most of the technicals are just charts I have set up in think or swim pared with chart reading.  The article I posted above does a good job of the chart summary (http://www.financialsense.com/contributors/ryan-jordan/silver-industrial-demand-best-yet-to-come) -- even though I don't agree with everything in the article.

 

As for the actual indicators:

 

1.  I use bollinger bands on 1 month, 3 month, 1 year, 2year, and 5 year charts

2.  I use a full stochastic on the same periods

3.  I use RSI on 1 month, 3 month, and 1 year (has to hit 25 or below for this)

4.  I use IMI on 1 month, 3 month, and 1 year (has to be below 50)

5.  To a lesser extent I use money flows as a last confirmation, if its below the 50% mark.

 

I start with the charts, if it looks like the trend lines are in place, I go to bollinger bands.  If those line up then I look at all of the others.

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Well this position is up nicely from yesterday, over 10%, but I'm going to keep holding.

 

I also bought some of the January 2016 13 Call for $6.35 today.  Higher break even point, but that relates to an almost 2 yr holding period if necessary.

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Chris, thanks for the tip. Bought SLV August calls strikeprice $18 yesterday when you posted, out of it today for a 30 cents gain. Made 14% of today's call volume. May take a few more round trips in the near future, if you say SLV is at the bottom.

Best wishes,

QZW

Edited by QZW

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Most of the technicals are just charts I have set up in think or swim pared with chart reading.  The article I posted above does a good job of the chart summary (http://www.financialsense.com/contributors/ryan-jordan/silver-industrial-demand-best-yet-to-come) -- even though I don't agree with everything in the article.

 

As for the actual indicators:

 

1.  I use bollinger bands on 1 month, 3 month, 1 year, 2year, and 5 year charts

2.  I use a full stochastic on the same periods

3.  I use RSI on 1 month, 3 month, and 1 year (has to hit 25 or below for this)

4.  I use IMI on 1 month, 3 month, and 1 year (has to be below 50)

5.  To a lesser extent I use money flows as a last confirmation, if its below the 50% mark.

 

I start with the charts, if it looks like the trend lines are in place, I go to bollinger bands.  If those line up then I look at all of the others.

thanks Chris!

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I bought some yesterday, since I agreed with your view of a likely bottom or pause point.  Nice 1 day return, but i'm still holding.  

I almost exited too, but I still am holding, small draw down today, but nothing to have me worried about and the trade is still positive. 

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I'm out of the August SLV calls at $4.10, 17% return.

 

I'm KEEPING my smaller January 2016 position.

 

I'll re-enter the position if we drop back down and the indicators line up. -- we're hitting the top of the technicals on rebound.  That means either (a) it'll break through and go significantly higher (another $1-$2), or bounce down and stay in this range.  I'm happy with the profit so I'm out.

 

I would have preferred to continue to hold a little more, but it was looking over bought to me.  That is my opinion and I could easily be wrong.  But I did want everyone to know I had closed out.

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I was waiting for today's follow up,

 

I just entered, again using the August, I bought the 15.5 Calls at 2.74.

 

Break even price 18.24.

 

However, please do note that SLV has now broke my downward resistance line, meaning this has more risk than before.

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There was a significant gap up today -- you can close this position if you'd like for about a 7% gain.

 

I personally am holding, but realize with a gap up like this there is a risk of retracement and giving up those gains.

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This trade turned out to be a big winner.  I had bought the August 18 calls when the first post on this topic was made, and since I had a few months to work with I was waiting for a big gap up like we got today - I was able to close for a 60% gain.   I thought I missed a decent gain when the trade went from a 20% winner to a loser in a matter of a couple of days a few weeks ago, but things certainly turned around quickly.

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Yep, if you held longer this worked great.

 

I just closed out the 1yr leaps today for a 55% gain.

 

So three trades:

one trade 17% gain

One trade 12% gain

One trade 55% gain (unfortunately this one was only a 1/10 position size)

 

This is one of those I wish I had trusted everything and grabbed a full max position size, but I am just too risk adverse to do that.

 

If things plummet back down again, I'll be watching to re-enter -- that typically does not happen that often though.

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Hi Chris,

 

Given the recent slide for GLD and SLV, I think I might structure a broken wing butterfly for either ETFs to give it some room to slide down further if the trend persists and cap the P/L on the upside. 

 

From what I understand, precious metals have been going down on a slide due to the attractiveness of dollar with the prospect of the Fed tapering and interest going up (although the Fed has been coy with the timing of when the interest rate is gonna go up). Since interest rate hasn't been hiked up yet and the uncertainty of the impact looming, I'm still a little bit bearish on GLD and SLV despite its depressed price,

 

But I'm not an expert at all on this subject matter but wanted to give my $0.02; others who are more knowledgable on this can comment and enlighten further,

 

Best,

PC

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This has been a pretty vicious decline without a rebound.

 

I do this trade with SLV over GLD because of the industrial uses of silver -- there is a demand for it OUTSIDE of the investment community, so theoretically (and in the long run), it has a base that GLD does not.

 

I agree with your marco analysis that the recent dollar strength has hammered commodities, pair that with the "CPI" report that shows no inflation, and metals go down.  (I put that in quotes because the way the US government measures CPI is a crock of bs, but its still the number that gets put out.)

 

Expanding this trade to try to capitalize on the slide is perfectly reasonable.  I personally am not going to, because I have almost 3 months to capture a bounce.  If we break the SLV 17 barrier, then I'll double the position again.  (If we then hit $16.50, I'll go lick my wounds). 

 

In the last couple of years of doing this trade though, a bounce always has come along (and no that does NOT mean one is coming this time, but I am betting on one).  I don't want to limit my gains if it happens tomorrow. 

 

If you think that no bounce is coming this week, or if there is, it'll be small, there's any number of things you can do to increase returns:

 

1.  Sell a vertical call spread for a gain OTM;

2.  Sell OTM naked calls (more risk more return that 1);

3.  change this trade to a calendar spread;

 

any number of other things jump to mind and would be appropriate if you don't see a bounce coming.

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BTW, if anyone was curious, I'm still holding this position.  The THIRD double is actually up, but the first two are still in the negative (the first one considerably so).  We still have several months to hang on though, so I'm not worried (yet).

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BTW, if anyone was curious, I'm still holding this position.  The THIRD double is actually up, but the first two are still in the negative (the first one considerably so).  We still have several months to hang on though, so I'm not worried (yet).

 

Thanks for the update, Chris.  I'm still hanging with you!

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This OBVIOUSLY did not "work" as there was not the bounce we normally trade on.  However, that's why I use DITM calls that are several months out, so if you don't get the bounce, you can still get "lucky" on a general rebound, which SHOULD happen, and why that safety net was designed -- we'll see if it works.

 

I'd much rather have just taken my 20% bounce gains that worked the last 6 times -- no trade is perfect I guess.

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This is the reason i stopped taking directional views

I only trade delta neutral

I know we pay double with straddle but then you have two more ways to make money

You can always reduce theta by selling some short term options but with reduced gamma

With straddle you are going in correct direction always

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I have July 13 calls, which I bought in November...  They have bounced around from a moderate gain to breakeven/small loss, I'm holding and waiting  for a bigger spike up.    Overall the SLV trade worked well for me in 2014 with one very big gain and a moderate loss - but finished with a decent gain overall.

Edited by Yowster

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Yup, took a few months, but I'm up about 70% on my Jul 13 SLV calls.  They are talking about silver and gold going even higher, so I'm debating whether to close it, roll to higher strike and/or sell some shorter dated upside calls against it.  I'm leaning towards rolling the July calls from 13 to 15 and selling Feb 18 calls against it (although not sure what Feb series to sell).

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