Inflation has become a big issue both here and abroad, and doesn’t appear to be going away any time soon. Metals are considered to be a hedge against inflation, and at this time, I’m recommending a very long-term silver options strategy as it also appears the U.S. dollar will remain weak.
Silver has been in consolidation mode in the past few months, but tends to follow gold, which jumped to a two-month high above $940 an ounce this week as tensions resurfaced in the Middle East and crude oil surged. The silver spread I’m recommending is a very long-term trade you put on, and basically forget for a while. Look to buy the December 2010 $21/$21.50 call spread, which expires on November 23, 2010.
December 2010 silver is trading near $19.50 and the spreads are running about 13 cents. So taking 13 cents x $50 = $650 for your cost, or defined risk on the trade. Your maximum profit potential would be $2,500, so subtracting the $650 gives you $1,850 (minus your commissions). This trade has close to a 3-to-1 risk/reward ratio, which to me looks like a good opportunity. Silver is a 5,000 ounce contract, and every penny is worth $50. You could also consider the December $20/$30 call spread.
Feel free to call me with any questions you have about this strategy or others to suit your particular account size and risk tolerance. Ask about our special half-off commissions offer for new clients.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
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