Announcing a Silver Linings Trade

The precious metals are an asset class that we believe has potential to resume rising after a few months of consolidation and digestion.

While to this point we have favored gold, today we look to add silver into the mix. Like gold, the silver exchange-traded fund (ETF) iShares Silver Trust (SLV) has traded off some 17% from its 2016 high back to find decent support to form a nicely rounded bottom. Silver benefits from a fundamentally improving economy, since the precious metal is a key component to many industrial and consumer products. It also tends to increase along with inflationary expectations.

Moreover, over the short term, we have seen fund flows of leveraged long and inverse silver ETFs take a turn from their respective trends. Improving fundamentals, technicals and sentiment are things we like to see to signal the beginning of a shift in a different direction.

With that in mind, when you receive this alert, sell to open the iShares Silver Trust ETF (SLV) Feb $15.50 puts (SLV170217P00015500) that last traded at 37 cents and expire on Feb. 17, and buy to open the SLV Feb $17.50 calls (SLV170217C00017500) that last traded at 33 cents and expire on Feb. 17. This trade should give a slightly positive cash flow but, more importantly, free unlimited upside. Again, the risk is below $15.50, but we are comfortable owning SLV at the price. Along with the option, buy PureFunds ISE Junior Silver ETF (SILJ), which is the junior miners’ fund. These junior miners stand to benefit the most from a move up in silver.

Our gold-related options strategies are potentially looking like we will put the shares, which means we will be forced to buy them at the strike price.

Going into the trade, we knew this was a possibility. Given the backdrop for precious metals, we welcome the shares and look to exit at a profit at a later time. The good thing with options is that they are all still live trades with continued profit possibilities. That said, anything can happen, so we will continue to update you on the best course of action.

Sincerely,

Doug and Tom