[Options] This Chart's a Leapin'

Sean McLaughlin
December 7, 2022

It's hard not to notice the strength we've been seeing in the metals space lately. This surely is getting the Gold Bugs excited.

We wouldn't consider ourselves any kind of "bug," but it's fair to say we're biased toward charts that trend. If line goes up, we like to buy. If line goes down, we like to sell. Simple.

If we can get into an emerging trend early -- so much the better!

"Poor man's gold" (as JC called it), might just be starting a big relative outperformance trend that could spell a big opportunity for us.

So here's the chart that's got the team excited. This chart shows the relative performance of Silver $SLV versus the S&P 500 $SPY:

As we like to say around here often: "From failed moves come fast moves..."

And that little failed breakdown that was quickly reversed this year looks like the makings of a long-term reversal.

"Long-term" to me suggests the possibility of a big trend to ride and gets me wanting to look at option Leaps --- Long Term Equity Anticipation Securities.

Looking out at available call options for $SLV, we see what we can get into $25-strike calls expiring January 2025! And prices look attractive.

Here's the Play:

We like buying $SLV January 2025 25-strike calls for approximately $3.50 per contract. The most we can lose is this premium we pay upfront today.

Due to the long duration of these calls, we don't expect there to be much PnL volatility, however, we'll still want to reduce risk if the trade isn't working. We'll be watching for the $18.50 level to hold. If we see any close below $18.50, that will be our signal that we may wrong and I'll want to close the position and wait for a better entry from the sidelines.

In the meantime, as always with long calls -- even LEAPS! -- I'll look for an opportunity to sell half of my calls at double the price I paid. Doing so will give me a #FreeRide on the remaining position. A free ride in an options position expiring two years from now! Gotta love that.

If you have any questions on this trade, please send them here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.

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