Buy Alert: December 17, 2013

| December 17, 2013

Buy Alert: December 17, 2013


Option Strategy:

Buy iShares Silver Trust (SLV) January 2014 $20 calls for $0.40 or better.


Commodity Outlook: Silver

Tomorrow is a very big day for silver…

The Federal Reserve announces their interest rate decision at 2 pm eastern.  Of course, no one expects a change in the Fed’s zero interest rate policy for at least another year.

However, investors are anticipating an announcement in regards to the Fed’s tapering program…  

As you’re likely aware, the silver market is being held hostage by tapering talk, and has been for the past six months.  Bulls simply can’t get the fundamental and technical momentum to carry silver higher.  And in more recent trading, bears aren’t able to push the metal any lower.

The result is a directionless and choppy market.

But that may end tomorrow…

If Fed Chairman Ben Bernanke announces he’ll delay tapering into 2014, silver will likely rally.  On the other hand, if Bernanke does start tapering tomorrow, but it’s for an amount less than the market is expecting- silver may still rally.

The only way I see silver dropping tomorrow is if tapering starts, and it’s for a bigger amount than investors expect.  But in my opinion, the odds of that happening are low.

While it’s true we have no way of knowing when tapering will actually start, now’s the perfect time to establish a low-risk call position in silver.  The way I see it, the odds favor a short-term rally in the price of silver.

To capitalize on a potential rally, let’s buy calls in the iShares Silver Trust (SLV).  If silver surges on the FOMC announcement tomorrow, so will SLV.

Here are the important details you’ll need for this trade…


Trade Metrics:

Underlying ETF Symbol: SLV
Call or Put: CALL
Expiration Month, Day, Year: January 17, 2014
Strike Price: $20.00
Current Bid/Ask Price: $0.35/$0.36
Maximum Buy Up To Price: $0.40
Maximum Risk Per Contract: $40.00

Here’s a breakdown of the important technical support and resistance zones in silver…


Exit Strategy:

Remember, we want silver to trade higher.  Our first profit target is $21.50 an ounce.  If the metal breaks above that important resistance zone, we could see an additional run to the $23.00 area.

The risk control price is $18.50.  If silver trades below that level, conservative investors should consider closing this trade to reduce risk.

Until next time,

Justin Bennett

Category: Commodity Trading