Silver has seen a very solid rally that has brought it back up over $14.00. This rally has stalled and the resistance level above $14.00 is strong and could very well hold this market back for some time. While in the long run silver may have the ability to rally much much higher, in the near term we have already seen a substantial rally and most of the time these rallies are followed by corrections. We are now seeing that rally stall and this trade positions us for the pullback that we expect over the next 60 days.
click on the chart to enlarge
Buy one May 2007 Silver 1400 put and buy one May silver 1300 put while selling two May 2007 Silver 1350 puts for a combined cost and risk of 10 cents ($500) or less to open a position.
Max profit, assuming a 10 cent fill, is 40 cents ($2000) and occurs with Silver trading at $13.50 at expiration. Break even points are 13.10 and 13.90 which gives us a 80 cent range in which we can profit.
Max risk, before commissions and fees, and assuming a 10 cent fill, is $500. This occurs at expiration with Silver trading below $13.00 or above 14.00.
Odom & Frey
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