Buy Alert: August 29, 2014
Buy Alert: August 29, 2014
Option Strategy:
Buy Silver Wheaton (SLW) December 19, 2014 $25.00 calls for $1.70 or better.
Commodity Outlook: Silver
No doubt about it, it has been a rough few weeks for silver. The commodity is down 9% from the $21.50 an ounce swing high set in early July.
But here’s the deal…
The recent price downturn has silver trading at important technical support near $19 an ounce. Since bulls have taken this commodity swiftly higher from this level twice this year, there’s a very good chance they’ll do it again.
Here’s how we’ll play a potential rally in silver…
Resource Company: Silver Wheaton (SLW)
SLW is a silver streamer. While that description may sound peculiar, the company’s business model is nothing short of genius.
Here’s how it works…
SLW pays silver mining companies a hefty upfront cash payment in exchange for the right to purchase silver at a low fixed cost. In fact, SLW’s operating costs equate to around $4 per ounce of silver… incredibly cheap.
Why would silver miners sell to SLW at such a cheap price?
Mining is an extremely capital intensive industry. SLW helps solves mining companies’ capital needs by providing them a huge upfront cash payment before shovels ever hit the ground. In return, SLW gets a percentage of production at $4 an ounce.
SLW then turns around and sells that silver at prevailing market prices.
Nice gig, huh?
SLW’s incredibly low cost structure makes it a leading mining industry performer when the price of silver turns higher. And with silver trading at important technical support, the odds are in our favor the metal does just that.
So here’s what we’ll do…
Buy the SLW December 19, 2014 $25.00 calls for $1.70 or better.
The current bid/ask spread for this contract is $1.46/$1.47.
Do not pay more than $1.70 per contract!
Our official entry price for performance tracking is $1.47. Your price may be higher or lower.
Exit Strategy:
Remember, we want SLW to trade higher. Our first profit target is the 52-week high at $27.50. SLW will likely achieve this goal if silver crosses above $21 an ounce again in coming months.
However, if silver rallies to the $22-$23 area by year-end, SLW will likely jump to our second profit target at $30.
The risk control price for this trade is $22.90. If SLW trades below that level, conservative investors should consider closing this trade to preserve capital.
Category: Commodity Trading
