Silver (SLV) - Trading the Parabolic Move with Option Spreads

Silver (SLV) has been on an absolute tear and without getting into too many details of why, some of the reasons include:

1) Silver is the only commodity with both industrial uses and monetary value

2) Unlike Gold, Silver is Consumed and Needs to be Replaced

3) Silver Production Increases Can Not Meet Demand

4) There is a Massive Short Squeeze in Silver

Today at 11:19am there was a large options trade in Silver (SLV) with 7,000 April $35 calls bought at $1.54 and 14,000 April $40 calls bought at $0.38. The trade was not marked spread, but it sure looked like a ratio call spread, but regardless I thought I would take a look at that trade as a spread.

Silver closed at $34.70 and a simple view of the chart would show the measured move targeting $41 (Prior Breakout of $19 to Next Top of $30 Implies $11 Move past $30 Breakout). Silver officially gave me a bullish reading on January 31st at $27.39 based on the ADX DM+/DM- Crossover, and the ADX closed today at 32, the trend is still fresh and room to run, seeing as the ADX hit 53 in October before a mini correction. The ratio call spread would work nicely in this case, as it is also bearish volatility, and the move higher is likely to have at least one correction along the way.



Trade: Buy the April $35/$40 Ratio Call Spread 1X2 at $0.79 Debit (Trade Profitable Between $35.79 and $44.21)



The ratio spread does tie up some margin because you are naked short OTM calls, but this spread is a way to use leverage to turn $79 into $500 (on a close at $40 come April expiration), but does involve risks if Silver were to blow past $44. If you are not wanting to be fancy, just look to buy the April $36 calls at $1.25, because this rocket-ship has plenty of fuel in the tanks.