Here’s How to Play Fall Rally in Silver

August 17, 2017 2:30PM CDT

Just when tensions in North Korea started to die down and Retails Sales showed a surprising uptick, it looked like that would be the one two punch needed to break this silver market. That’s when the FED minutes showed that the current participants of the FOMC committee was split over when to raise interest rates, breathing a new sign of life into silver.

Currently, the bulls have regained full control with silver trading back above $17/oz, and it will need to punch through $17.30 to put $18 in the cards. One of the key ratios to keep an eye on is the Gold/Silver ratio that measures the number of ounces of silver it takes to buy one ounce of gold. Knowing that the ratio is still trading at lofty levels and an extreme along with a low volatility environment, I have outlined a strategy to try and take advantage of a rally using options.

Weekly Focus

With the FED minutes behind us indicating expectations for another rate hike have diminished and further reduction of the balance sheet hasn’t yet been fully outlined, I believe that silver will see the next major rally on the heels of low inflation environment. 

Daily Chart Analysis and Price Outlook - Gold/Silver Ratio

Daily Chart Analysis and Price Outlook - Gold/Silver Ratio

Sep '17 Silver Daily Chart

Sep '17 Silver Daily Chart

Analysis and Outlook

The daily silver chart shows a sliding channel formation with small tops at $18.75, $17.75, and $16.75 where the breakthrough to the upside has created an all new chart pattern with $17.25 being a key level of resistance. I would expect a breakout about this level would trigger a rally back up to $18. While expecting the recent low point at $16.50 in price and volatility, I have designed a strategy that involves writing short dated put options while using longer dated call spreads to attempt to take advantage of a longer term price recovery. I would expect prices to recover to back to normalized levels back above $18/oz. by year end. 

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.