Poor, poor precious metals. Once the darlings of speculators everywhere, precious metals and stocks of companies who mine those metals are seemingly being tossed to the curb as the speculation world focuses all of its attention on Bitcoin and roughly a bazillion other “cryptocurrencies” (question of the day: If you cannot explain out loud in a sentence or two what a cryptocurrrency is then why are you trading it?).
Things have gotten so carried away I am contemplating changing the blog name to “CryptoJayontheBlockchaintechnologyMarkets.com” in an effort to increase readership. Also, if anyone interested in speculating in some of the JCoins I just created in my basement please feel free to make me an offer.
Anyway, Figures 1athrough 1d display bar charts for GLD (gold ETF), SLV (silver ETF), GDX (gold stock ETF) and SIL (silver stock ETF). Note the current status of implied volatility for options on each – low, lower, lowest; i.e., traders have lost a lot of interest in these ETFs as speculative vehicles.
Figure 1a – GLD (Gold ETF) with implied volatility (Courtesy ProfitSource by HUBB)
Figure 1b – SLV (Silver ETF) with implied volatility (Courtesy ProfitSource by HUBB)
Figure 1c – GDX (Gold stock ETF) with implied volatility (Courtesy ProfitSource by HUBB)
Figure 1d – SIL (Silver stock ETF) with implied volatility (Courtesy ProfitSource by HUBB)
Let’s take a closer look at silver.
In this article dated 11/17/2017 I “predicted” that “something” was about to happen in silver. And it did. SLV immediately plummeted lower – then reversed course and made it all back and is roughly unchanged from where it was at the time of the original article (which explains why I don’t bother making a lot of “predictions”). So is there any future for silver?
In Figure 2 we see that SLV appears to be “coiling” into an ever tighter range. There is a good chance that this will continue for at least a little while.
Figure 2 – SLV “coiling” (Courtesy ProfitSource by HUBB)
While the range in Figure 2 looks pretty wide, in reality, it is not necessarily so as we see in Figure 3 which highlights the same pattern but with much more historical data.Figure 3 – The same SLV “coil” from a longer-term perspective (Courtesy ProfitSource by HUBB)
Where to from here? I am probably not the guy to ask. In the original article linked above I highlighted a bullish example trade – and SLV immediately plummeted for days on end. Still, for what it is worth, the weekly Elliott Wave count from ProfitSource by HUBB for SLV is suggesting that a 5-wave down pattern may have been completed. In theory anyway, this should be followed by a move higher. We’ll see about that, but for now it at least provides a nice support area as shown in Figure 4.Figure 4 – Weekly Elliott Wave count for SLV (Courtesy ProfitSource by HUBB)
In the original article I highlighted an example bullish trade using options on SLV and a strategy known as a “backspread”. This trade involved selling 1 June2018 11 strike price call and buying 5 June 2018 16 strike price calls. You can see the current status (basically unchanged) and the risk curves for this trade in Figure 5.Figure 5 – SLV backspread risk curves (Courtesy www.OptionsAnalysis.com)
As I mentioned above the current level of implied volatility for options on metals and metals miners are historically low. This tells us two things, 1) traders have very low expectations for the likelihood that any of these securities will move significantly anytime soon, 2) options on these ETFs are “cheap” (i.e., low implied volatility means there is relatively little time premium built into the price of the options).Figure 6 – SLV implied volatility extremely low (Courtesy www.OptionsAnalysis.com)
For a trader willing to “take a flyer” on the contrarian possibility that:
*SLV will make a significant price move to the upside sometime in the next year and/or;
*That implied volatility will increase sometime during the next year
One inexpensive speculative play would be to buy the January 2019 16 strike price call as displayed in Figure 7. To buy 1-lot of this option with 380 days left until expiration costs $166.
Figure 7 – SLV January 2019 call option (Courtesy www.OptionsAnalysis.com)
As always, I am not “recommending” this trade. It serves simply as one relatively low dollar cost way to speculate on a price move higher by SLV in the coming 12 months.
It would seem that the “cryptocraze” has sucked all of the oxygen out of the other traditional “speculative” space traditionally occupied by precious metals and metals miners. And the reality is that this may continue for some time. But if history is a guide, at some point precious metals will break out of their respective extended trading ranges and offer some speculative trading opportunities.
Hence, alert traders should remain – well, alert.
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.