Metals have been selling off for many weeks now and we are nearing a solid support levels in many of these markets. Notice on the chart below that we have all but hit the Fibonacci 50% retracement level. Silver has, as usual, been the most volatile of the group and this volatility is expected to continue in the near term. This trade is a short term bull trade that offers an unusually high risk to reward ratio of 9 to 1. This trade gives us a unique opportunity to buy a support level and bet on a solid bounce or recovery in metals.
After the bloodbath that we saw in silver today this trade is a much “safer” way to buy this dip than outright futures. This trade is also attractive because it has a 180 cent profit range between 12.10 and 13.90.
Click the chart to enlarge
Max profit assuming a 10 cent fill is 90 cents ($4500) giving this trade a 9:1 risk reward ratio. Max profit occurs at expiration with Silver trading at 13.00. The trade is profitable at expiration if the Silver is trading any where between 12.10 and 13.90 (break even points) which means we have a band of 180 cents in Silver that we can profit in!
Max risk assuming a 10 cent fill is $500. This occurs at expiration with the Silver trading below 12.00 or above 14.00.
Note: Derek Frey, head trader for Odom & Frey Futures & Options, will be holding an expert webinar with Edward Ponsi, fx educator for Fxstreet, and Tony Juste, foriegn exchange advisor to Fxstreet. The topic is Forex. This will be a voice webinar. The session will be Wed June 21 – Fri June 23, 2006. Starting every day at 13:00 GMT/10:00 am EST, and will last for approximately 4 hours.Click here to register for this webinar.
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