Silver Options for the Next Two Weeks

Brad Zigler

Real-time Monetary Inflation (per annum): 8.6%

Last week, silver staged a breakout move to the upside that had metal aficionados cheering. We mentioned the white metal's outperformance in our June 2 column, "Gold Left Behind By Silver."

Silver's rally stalled when a thick ceiling at the $16 level developed on the daily charts, though. The overbought market has lost some airspeed. The intermediate-term bull trend is still intact, but it could be significantly weakened if the July COMEX delivery can't close out the week above $15.26.

There's a bit of ground to cover for that to happen. This morning, July silver opened its floor session at $15.31 after being beat down below the 15 handle Monday. Overnight, silver had slipped lower to test support at $14.80.

Spot Silver Loco London

We'd mentioned a summertime swoon typical of gold in last week's "The Season For Gold? Not Yet" column.

July silver, likewise, has a seasonal tendency, often selling off through the last week in June, before a mid-July run-up.

Traders in the option market seemed to have taken note of that as a batch of July $16 calls were snatched up at 20 cents per ounce ($1,000 per contract) today. It's a short-term play for sure, since these contracts will expire June 25 - just two weeks hence.

If the cloud cover at the $16 level clears, the silver market's upward momentum toward a key retracement level at $16.78 would resume. A breakthrough into the clear air would give the call's holders an incentive to exercise their options and go long July futures. There'd be little time left before notice day, though. Delivery notices start going out on June 30.

Alternatively, the call owners could just sell their contracts for their market value, but at that stage, they'd be, at best, worth only intrinsic value. Silver would need to be above its $16.20 breakeven point for the venture to be profitable.

Possible? Sure. Probable? Well, not so much. Given the contract's current price and volatility, the probability of July silver getting above the breakeven point by expiration is only 28%.

It's the seller of the calls that commands the better odds. A flat or falling market over the next couple of weeks, in line with silver's seasonal tendency, will likely line the trader's pocket with a cool grand per contract.

Not bad for two weeks of non-work.

Comments

[ddearborn:]

Well one thing is certain. The usual suspects will magically be in just the right position (what ever it may end up being) at just the right time to maximize their profits and quietly slink away for the summer. Some things never change. There is a reason the rich get richer; they lie, cheat, steal and bribe all the way to the bank. It has worked for centuries. I have no ax to grind bye the way. I am currently all liquid having no assets tied to the markets.

Jun 10 09:38 AM

[Mongoose:]

Call me stupid. I'm still holding GG,KGC,AUY. Have my eyes on JAG. Good Luck Guy's

Jun 10 01:28 PM

[GMiki1:]

Mongoose, Not stupid. Just hold long if you don't need the money now. I've been holding GG for a long time. I'm up but I expect to make quite a bit in the sweet by and by. Things finally feel to be turning around for the resource sector. Hasn't quite happened, but a lot is slowly moving that way.

Jun 10 07:14 PM