Monday, September 20, 2010

The SLV Lining

With last Tuesday's breakout to all time highs, gold was thrust back into the spotlight after receiving little attention over recent weeks.  Though gold is usually the primary recipient of media attention within the commodity space, silver has been capturing some significant gains as well.  Indeed, silver, as measured by the ishares silver trust, has tripled the gains of gold over the past month (click image to enlarge).

[Source: Livevol Pro]

To exploit a continued rise in silver, how about this short put, long call spread combo suggested by the IVolatility Trading Digest Blog:

With a Historical Volatility of 18.54 and an Implied Volatility Index Mean of 29.33 for an IV/HV ratio of 1.58 and a very bullish put-call ratio of .24, consider this combination.
 In the event there is a correction in the next few weeks, there is a chance the Oct 20 put will be in-the-money and assigned.  This could be part of a plan to establish a long ETF position. In the event there is no near-term pull back then the October will expire reducing the cost on the outstanding long call spread.  However, if the correction continues back below 19, then consider unwinding.
All in all I like the structure of the play.  I'm a fan of using short puts on cheaper priced stocks particularly when one is seeking to accumulate shares of stock at a discount.  The long call spread goes out a couple months giving traders ample time for the stock to move into the meat of the spread.

For related content, readers can check out:
IVolatility Trading Digest Blog


Investment research directory said...

Speaking of stocks under one dollar. I bought shares in vonage holdings corporation for 37 cents and recently sold them for 5 dollars.

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