1 Options Trade to Make Now as Silver Looks Ready to Top Out

Consider buying a put option on December silver (SIZ25) futures.

See on the daily bar chart for December silver futures that prices have soared to a record high this week. However, it’s my bias that prices are close to a near-term top. History over the past 50 years shows that if prices are close to or above $50, they don’t stay there for long. Also, see at the bottom of the chart that the Relative Strength Index (RSI) is showing bearish divergence, whereby silver prices moved to new for-the-move highs, while the RSI started to trend down from its late-September peak.

Fundamentally, safe-haven demand has been driving silver prices up, including the closure of the U.S. government and U.S.-China tensions. However, the U.S. government has been closed before and will reopen again. Also, tensions in the Middle East have eased recently. The U.S.-China trade tensions are elevated at present, but it’s likely both nations will ratchet down their rhetoric in an effort to come to a trade agreement, knowing that a full-blown trade war would damage both economies.

Consider buying a well-out-of-the-money put option on December silver futures. The volatility is so high at present that the less-expensive well-out-of-the-money puts can still be profitable. The downside price objective would be $40.00, or below. The December silver options expire in late November.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any trades and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission (CFTC) has said about futures trading (and I agree 100%):

Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com