While Silver May be Less ‘Precious’ Than Gold, It Certainly Can Shine Like It
Silver began its bullish journey after bottoming on March 18, 2020. Within a week the price had surged over 25% before consolidating its gains over the past week. That move finally allowed to play a little catchup with gold as it significantly underperformed its rarer and more precious counterpart.
One way to invest or trade the price of silver is through the iShares Silver Trust (SLV). It tracks the price of silver and has options available to trade on it. On Wednesday, there was significant call volume that traded on for the January expiration. It was a long call vertical that was pricing in potential for Silver to finish above $30 by the beginning of next year. With all of the money being thrown at the current economic state of affairs, it makes sense that hard assets may have a chance to move higher here and option traders seemed to indicate that on Wednesday.
The potential built in silver and gold is certainly being backed by demand as well. Sales have jumped for the metals and gold has become very scarce to buy in the physical market.
From a technical standpoint, SLV completed a bull flag price formation. This type of formation begins with an almost straight-line move in the price followed by a consolidation phase. The consolidation phase can be framed by a horizontal or slightly downward-sloping channel. In the case of SLV that consolidation phase led to it testing its low of the gap day on March 24, 2020. The completion of the pattern is a breakout above the channel, which it did today.
The target is based on the initial surge in price, called a flagpole, added to the breakout level. The $2.50 initial move added to the breakout level gives a near-term target of $15.50.
Option traders may want to consider a 16 OCT 20 $17 long call for around $0.80. If SLV were to retest its high of $18 by expiration, it would essentially breakeven, but if it makes a move more quickly or toward its 2016 high near $20, the profits become more significant.