Larry’s Note: On October 7, Washington threatens the U.S. dollar… Your bonds. Your cash savings. Even the dollars in your pocket. They will all be put at risk.
That’s why I’m offering you a free seat at my upcoming emergency briefing. There, I’ll share how banks have already turned this situation into a $22 billion windfall… and a three-step process you can use to go after a piece of it.
Simply click here to automatically add yourself to the guest list.
One thing I’ve learned over more than 40 years of trading is that you don’t always need a big market move to make good money.
Often, the better opportunity comes after the initial move has already happened. Rather than chasing the market higher, you wait for a pullback and see whether buyers step back in. Then you can look for an opportunity to capture the next leg.
That’s exactly what we did with the iShares Silver Trust (SLV).
Silver has been particularly volatile this year. In January, it topped out at around $121. Then, after nearly halving in just a few days, it’s continued to make enormous swings in both directions.
After watching SLV rally strongly from its July lows, we waited for the price to come back to an important technical level. And when buyers stepped in, we pounced on the opportunity, banking a 21% gain in just three days.
So let’s see how the trade panned out…
Ask most Americans where their money is safe, and they'll name the same four things. According to Jeff Brown and Larry Benedict, all four are now in danger. Not from a stock market crash, but from what they expect to happen to the U.S. dollar at 1:00 p.m. ET on Wednesday, October 7, on a deadline set by the federal government. During their upcoming emergency briefing, they’ll say why – and where they say the money goes instead. Click here to reserve your free seat.
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On the chart below, you can see that SLV has been on quite a ride.
Having traded above $80 in May, it fell sharply over the following two months before bottoming around $50 in July. From there, momentum steadily built, as we can see in the Relative Strength Index (RSI). SLV rallied back above $60 by late August.
Check out the chart:
iShares Silver Trust (SLV)
Source: eSignal
But rather than chase that rally, we waited. SLV pulled back through the first half of September as buying momentum waned.
That eventually brought it back to its 50-day moving average (MA, blue line) around the $56 level. MAs are something I watch closely as they can act as both support and resistance.
The other thing I kept close tabs on was the RSI. Despite pulling back, the RSI held around the 50 level. And with momentum and price both holding support, we were looking for momentum to turn higher as confirmation that buyers were stepping back in.
So we bought a call option to capture an anticipated rebound. (A call option typically increases in price when the underlying stock rallies.) That call option cost us $3.10, which equates to $310, as an option contract is for 100 shares.
And the response came quickly enough…
SLV rallied off its 50-day MA and pushed back toward the $60 level. Given silver’s volatility, we sold our call option just three days later for $3.75 (or $375 per contract) – a quick 21% gain.
The important takeaway: We weren’t trying to predict SLV’s next high, or where it would trade a month or two out. Instead, we waited patiently for a pullback after the initial rally. We identified a setup where price and momentum were giving us clues that buyers were starting to re-enter the market.
There’s no point in being greedy. Once we got the move we were looking for, we took our profit off the table so we could get ready for our next opportunity.
To be clear, because options use leverage, they magnify both profits and losses. And because options expire, timing matters.
But when the setup is right, they can turn a modest move in the stock into a sizable return, as this trade did. We didn’t need SLV to make an enormous move. We just needed to identify the right setup and be ready when it arrived.
And with that money banked, we’re ready for our next trade.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
