Buy Alert: September 17, 2013

Buy Alert:  September 17, 2013

 

Option Strategy:

Buy iShares Silver Trust (SLV) October 2013 $22.00 calls for $0.60 or better.

 

Commodity Outlook:  Silver

Wednesday is a very big day for the silver market…

As you may know, Ben Bernanke is expected to announce his initial plans for tapering Federal Reserve bond purchases tomorrow afternoon.

Estimates for the initial round of stimulus cutbacks are all over the map.  Some economist say $10 billion, others say $20 billion, while an outlandish few still believe the Fed won’t taper at all.

My view is that the Fed will indeed start tapering.  However, it won’t be nearly as much as the silver market is expecting.  And right now silver investors are pricing in the most popular tapering estimate of around $10 billion a month.

That means if the Fed tapers less than expected (or doesn’t taper at all), we could see a substantial rally for the price of silver.

As you know, the best way to play a bullish breakout in silver is with the iShares Silver Trust (SLV).  When silver trades higher, so does SLV.

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

 

Trade Metrics:

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

 

Exit Strategy:

Remember, we want the price of silver to move higher.  Our first profit target is $24.50 an ounce.  If the metal can break through that important level, we may see it retest $28.

The risk control line for this trade is at $20.00 an ounce.  If silver drops below that level, conservative investors should consider closing this trade.

Now let me be clear…

I am picking out-of-the-money ($22), near-dated (October) call options due to their relative cheapness.  We don’t want to overpay for this trade.  We’re essentially making a calculated bet that Bernanke is going to surprise the silver market tomorrow.

 

Category: Commodity Trading