Those who followed my previous recommendations to strangle the Gold market were rewarded as gold broke out of its current wedge formation and traded down to my price objective of 1240.0, before bouncing.
Silver Scenarios
I see similar price action in silver, not quite a wedge formation like Gold, but a market that has trended lower since the end of February and might be due for a correction. I am looking at two potential scenarios the next few weeks that could prolong silver’s three month swoon or force shorts to cover resulting in a retracement back to the upside.
Traders will be contending with numerous economic reports on the economy both domestic and global while key policy statements from the ECB and Federal Reserve await as well. Let’s not forget the monthly jobs data coming this Friday and later this month the end of the second quarter. We are sure to see some fireworks across many commodity sectors with all eyes on the stock indices and then the Dollar. It is hard to predict what the triggers will be that prompt Silver for its next big move, but it is my contention that Silver makes an aggressive move one way or the other and doesn’t stay within current levels.
The Trade
Therefore I propose the following trade. It is referred to as an Iron Condor. In using July options, I will simultaneously buy the July Silver 1950 call and sell the July Silver 20.00 call, while buying the July Silver 1800 put and sell the July Silver 1750 put. This strategy affords me exposure in both directions but depends that Silver trades in an aggressive direction either towards 1950, or down near 1800. In looking at the chart, the market put in a near term yearly bottom at 1861.5 on May 26th, with its 52 week low down at 1818. Looking at the chart, a possible gap fill down to 1818 seems possible. With all the data out in the next few weeks, a retracement back up to the 1930-1950 level also seems possible. I propose buying the condor for 12 cents, or in cash value, $600.00. The risk on the trade is the price paid for the spread plus all commissions and fees.
Webinar
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. If you cannot attend live, a recording will be sent to your email upon signup. Sign Up Now
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
