Category Archives: SLV

Doesn’t it Feel Like Friday?

Yesterday’s terribly long debate between Francoise Holland and Nicolas Sarkozy helped me reduce the differences between a never-ending American electoral campaign and the well regulated French contest: Americans strive to create a 5 word 5th grade soundbite for Fox or CNN, the French try to loose you in 500 word incomprehensible discourse. Obvious but in the context of a busy week, chock full of earnings, announcements, and a battered VIX, it saps my energy. It feels to me like a Friday but it sadly isn’t; tomorrow brings the payroll and unemployment numbers. The SPY is consolidating at the 200 DMA in anticipation.

I’m observing:

  • Gold (and Silver) are staying in strong correlation with SPY.
  • If you are trading a flat channel in the $SPY we’re just breaking out under the lower boundry at $139.50
  • Natural Gas continues to contradict the pundits. See this post. I’m long and buying the dips, and intelligently setting my stops, I hope.

As for sentiment which is always hard to pinpoint, few traders want to be long before tomorrow’s payroll number especially after the ADP miss earlier this week. The irony is that the ADP number is effectively useless, so I work to ignore it…

Eggs and Solar Flares

Solar Flare Pause

Thanks to a solar storm we’ve avoided a Greek default, and seen the largest sovereign debt restructuring in history. Private creditors will loose 75% on their value (100 billion euros). There was an 85% + participation and Greece will activate the collective action clause (CAC) which will basically screw over the remaining holdouts.

I’d like to offer a swap of my sovereign debt! Hello? And my crippling debt? Spain, Portugal? The markets are digesting all this, this morning. After the NFP numbers, the American markets look optimistic and futures are pointing upwards after shrugging off the PSI announcement.

I’m looking at the markets with relative sceptisicm, as usual, and counting on my ranges to hold atleast through the beginning of next week as we approach March expiration. If we continue to crawl upwards on the $SPY, I’ll bail over $138.50, or roll up and out… It is a Friday.

Gold and Silver are tanking and Oil is flat.

The Euro is tanking, which strikes me as a bad omen.

So to translate the pre-open sentiment: risk on for equities, risk off for the Euro, sidelines for commodities.

Eggs and Solar Flares

Good trading.

 

SPY Chart 070312

Just sayin…

The levels were good, this is reassuring!

  • 138.22 — Thursday
  • 136.63 — Monday
  • 135.80 — Tuesday
  • 134.25 — Tuesday (ish)
  • 133.72
  • 131.50

I’m still following the ranges I mentioned (here), and will be adjusting my $SPY spreads if we move outside the 134/136 range.

SPY Chart 070312

If SLV breaks the $31.50 low I’ll be looking to get out of the SLV butterfly I spoke about (here). I’ll also be keeping a close eye on the VIX and GC_F.

Good trading.

Is 5% the New 1%?

Judging from the overwhelming optimism it’s time to buy!

  • AAPL is going parabolic and is now worth more than Poland (Apple has 2 products)!
  • Europe is safely contained thanks to the ECB’s LTRO.
  • It’s an election year and with oil prices are at a near all time high – Mr. Obama will likely tone down the war mongering.
  • VIX is relatively low.
  • Renewed confidence in the EUR.USD

But here’s what reassures cynics and contrarians:

  • A recession in Europe will impact the US growth prospects to a greater degree than presumed. Ford is projecting a loss of $600M.
  • Commodity Markets are jittery. GC_F and SI_F fell off their chairs yesterday.
  • IPhones and IPads do not represent a solid market foundation, $AAPL does not create jobs, in fact their Jobs has moved on to better things (hopefully).
  • Housing and Employment. 54% employed 18-24?
  • And my favorite: Even with a 5% correction in the $SPY we’ll still be in a bull market, that leaves a good reversion to the mean.

One thing I’ve learned from losing money is to avoid betting against the trend or calling the top/bottom. That’s a fools game and you’ll be stopped out quickly. On the other hand, now is the perfect time to buy some protection for expiration on the April, May and January time horizons.

The levels that I’m watching on the $SPY are:

  • 138.22
  • 136.63
  • 135.80
  • 134.25
  • 133.72
  • 131.50

Crude Futures Weekly Chart

Gold and Silver Spike

Thinking still about warning signs, GC_F (Gold Futures) have spiked 1% in the last 30 minutes. Gold is nearing it’s all time high of $1900. Remember the paranoia? The talk of a bubble? We are not hearing any of that now.

Why the spike on no news? It’s hard to say, but either big buying or safe buying. If it were safety plays you would see an inverse relationship in the equity markets, which you don’t. So it’s a big buyer (or buyers).

Three charts which are playing contrary to the market:

Crude Futures CL_F

Crude Futures Weekly Chart

Silver Futures SI_F

Silver Futures Chart

Gold Futures GC_F

Gold Futures Chart

SPY Warning Signs

SPY Troubles Ahead

The following are a few of the futures contracts I watch:

SPY Warning Signs

As I’m writing this the SPY is falling and Gold/Silver/Oil futures are rising. I’m reading this as a warning sign for the markets. I spoke about the VIX recently, here.

One explanation for this divergence is inflation. Central banks are printing, cash is being hoarded, the dollar is rising and corporate profits from europe are therefore vanishing. Add Greece debt to the mix and the strong possibility that they default, you add the inflation worry to the list and talking points for politicians, media, and market watchers.

Now take gas prices which are starting to come up as an election issue, even a war issue. Frankly high energy costs are a good excuse for the market to pull back, don’t forget that the media will be playing this up, mixed with war mongering, and as an election issue that’s low-hanging fruit and an easy way to scare off the recent retail investors market participation.

As a trade idea a SLV 40/50/60 butterfly at Jan expiration is one I’ve written about here and I still think this is a very prudent trade. Keep a close eye on USO as well.

Good trading.

SLV Option Idea

An Intriguing Silver Trade

I spend a fair amount of time dissecting option flow for the following reasons:

  1. Copying from another can be the highest form of flattery
  2. Institional traders know a lot more than I do
  3. Puzzles inspire me

Yesterday I stumbled on an option trade in the Silver ETF, SLV which has intrigued me for the last ~12 hours, a call butterfly at the 40/50/60 Jan 13 strikes. IV at 42/44/46 and the risk profile looks like this:

SLV Option Idea
SLV is at $29.29 so this trader finds maximum profit at 50 or a 59% rise in SLV over the course of the year. Remember, the expiration is 11 months out. Now look at the yearly chart for silver:

SLV 1 Year Chart

This trader is betting that before the year is out $SLV will retrace it’s past year highs. On first glance I couldn’t quiet understand why anyone would want to take this trade. It cost $0.70 (x 10k) or $70,000.00 and granted if SLV tests last years highs the profit on this trade would be a factor of 10. So… Still why would you make this trade? A market makers hedge against something I don’t understand? Could it be a hedge against a short futures position? A pure macro play assuming Silver becomes a safe haven? Wouldn’t a long call with lower strikes or a bull spread at lower strikes bring the same risk reward? If anyone that reads this has any idea, I’d love to hear.