There is a TON of noise & mixed signals in markets right now.
But we think we’ve identified an opportunity in #preciousmetals.
Setting up a relative value trade in $GLD / $SLV
Curious about our trade thesis?
You’re in luck. It’s time for our first ever…
Trade Idea Tuesday | Part 1
➠ CORRECTING SINCE START OF FEB
𝞂 Both #Gold and #Silver have been correcting since the start of February.
And are now reaching what looks like interesting entry points.
First, looking closer at Gold.
1800 looks like key support
If it holds, then a resumption of the impulsive uptrend that started in October could be in the cards.
Leaving us feeling content to pick up some Gold upside ($GLD Calls) around the 1800 support zone.
Now, onto Silver.
Has underperformed Gold as it hasn’t had the central bank buying (de-dollarisation) support.
Plus, having industrial use links it more to global growth and renewables demand.
So, if you happen to be underweight Silver, we think it makes sense to pick up some exposure if we get another ≈ 15% drawdown from here.
➠ IMPLIED VOLS
𝞂 #Impliedvol on Silver typically trades higher than Gold.
Currently, almost double @ 26 vs. 13.5.
So as mentioned, if you’re comfortable taking ownership of some Silver down at lower levels, say 15% lower by 16Jun23…
Then we think selling #Puts looks attractive with Silver Put #skew trading expensive relative to history.
Gold #Calls are not as expensive as they have historically been.
Especially considering that Gold’s implied vols have not increased despite selling off 7% from the January highs.
The combination of these observations is the basis of our trade thesis for this GLD/SLV relative value opportunity.
➠ RELATIVE VALUE OPPORTUNITY
To recap, we are suggesting an RV trade of selling SLV (10-delta) Puts and buying GLD (10-delta) Calls with the premium.
This way, you take advantage of the volatility differential, allowing you to buy 2.5X the notional of $GLD Calls as the $SLV notional you are selling.
We see this as a smart way to get leverage to a Gold rally…
But only if you are comfortable owning Silver, down 15% from current levels!
Since you may have to take ownership of the SLV puts you sold if the price is through your strike at expiry.
➠ Watch the attached clip from today’s Macro Options Spotlight for more colour on this trade idea.
➠ Go to the Options Insight YouTube Channel right now to watch the full Spotlight and also see:
• Recap of yesterday & overnight price action
• Today’s Cross Asset Vol Summary
• And our read on the mixed signals throughout markets right now
➠ Want this kind of analysis and trade idea sent directly to your inbox every morning?
➠ Use the link in my Twitter Bio right now and enter code RV2023 for a free month of everything Options Insight has to offer.
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And keep an eye out for Trade Idea Tuesday | Part 2 coming later today.