DailyPlay – Conditional Opening Trade (SLV) – May 15, 2023

SLV Conditional Bearish Opening Trade Signal

View SLV Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 30 Contracts June 9th ATM/+$1 Call Vertical Spreads @ a current cost basis of $0.38 Credit per contract.

Total Risk: Based on the current cost basis this trade has a max risk of $1,860 (30 Contracts x $62) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $62 to select the # contracts for your portfolio.

Trend Continuation Signal: This ETF is mildly bearish to bullish and is expected to pull back from this level.

1M/6M Trends: Mildly Bearish/ Bullish

Technical Score: 7/10

OptionsPlay Score: 96

Condition: Open this trade when SLV trades between $22.35 to $22.50. Use the then-current price of SLV (ATM) as the Sell leg strike and +$1 for the Buy leg strike.

Investment Rationale

A loss of 29 bps in the SPX last week, but the Dow lost over 1% while the Nasdaq gained 40 bps. Having fun yet determining which way “the market” is going?

To me, the unresolved potential insolvency of the US government on June 1 is the biggest issue of the day – far more important right now than what the Fed will do next, or where is inflation, or even which regional bank is next to go belly up. There’s just over two weeks till that date, and if our leaders can’t come to terms on raising the debt ceiling by then, few will be happy – most especially every other government in the world that issues debt – because the rates they need pay are all based upon what the US pays. Send ours’s higher on a default, and it costs every government elsewhere more. No es bueno.

As I write this Sunday night, the three major US equity futures markets are down a tad, meaning no major news story came out over the weekend to give the market any real direction yet. But then again, the market hasn’t really wanted to make a decision on which way it really wants to move for several months. And along with my opening salvo, above, the weekly DIA chart is trading above its cloud top; the SPY one just a tad above its own; and the QQQ still beneath its cloud top = No definitive confirmed upside breakout for the US equity markets. (And the IWM is still beneath its cloud bottom.)

My goal is to not only keep you abreast of what’s happening across the major asset classes, but also to help you best navigate the markets. I’ll again mention what I said to you last week: There is little reason to employ new risk capital now; the more important goal is managing your current investment and trading portfolios. We see almost daily that there is no definitive overall trend right now in stocks (and bonds), so deciding to be newly long or short a corporate stock name does not come with an edge. And in my book, no edge = no trade.  It’s that simple.

But I don’t mind trading in the commodity area, because here’s there’s more chance for exploiting what appears to be a bunch of trapped buyers in the silver market.

SLV – Daily

Right now, the SLV June 9th ATM/+$1 higher call spread collects about 38% of the strike differential. I’d like to get a bit more, but the last few days have been sharply lower, so calls have gotten hit hard. If SLV can consolidate at all this week, and we get a chance to sell a rally in the SLV ETF up to the $22.35 to $22.50 level, let’s then sell the SLV June 9th $22.50/$23.50 call spreads for the current bid/offer spread at that time. The credit shouldn’t be meaningfully less than the 38% strike differential, and hopefully it will be a bit more.