Silver ETF: Strike While The Iron Is Hot (SLV, PSLV, AGQ, SIVR, DBS, ZSL, SIL, GLD)

Tyler Craig:  Don’t look now but the iShares Silver ETF (NYSE:SLV) be percolating. Yesterday’s 4% surge in the shiny metal marked the first break of a daily resistance level since the cascade of selling began in mid-April.  If you were waiting for signs that the liquidation clouds were parting and the bulls were returning to their beloved moneymaker of the past, the wait maybe over.  Time will tell whether this short term pop turns into a bona fide trend reversal.

What interests me more is the behavior of SLV implied volatility which has staged quite the roller coaster ride over the past two months.  A brief analysis of its behavior reveals a key lesson for option volatility traders – strike while the iron is hot. With the recent death spiral in SLV’s share price, implied volatility shot through the roof as investors flocked to purchase options in droves.  At its zenith implied volatility peaked at 67% – a level we now know as unjustifiably high.  As SLV has experienced a return to normalcy in recent weeks we’ve seen demand for options rapidly subside bringing implied volatility crashing down with it.

[Source:  Livevol Pro]

In situations like SLV where we see sharply elevated implied volatility levels, one must be quick in entering short volatility trades.  If you wait too long for the stock to stabilize or reverse back into an uptrend you usually miss the lion’s share of the volatility crush.  Such is the case with the current setup in SLV.  While it has certainly stabilized in recent weeks giving traders more confidence in entering bullish type plays like short puts, the implied volatility is much lower than a few weeks back.  My one regret with playing SLV is simply not acting sooner.  I failed to remember that when it comes to high implied volatility the time to strike is while the iron is hot.

Tickers: iShares Silver Trust (NYSE:SLV), Sprott Physical Silver Trust (NYSE:PSLV), ProShares Ultra Silver (NYSE:AGQ), ETFS Physical Silver Shares (NYSE:SIVR), PowerShares DB Silver (NYSE:DBS), ProShares UltraShort Silver (NYSE:ZSL), Global X Silver Miners ETF (NYSE:SIL), SPDR Gold Trust (NYSE:GLD).

Written By Tyler Craig From Tyler’s Trading

Tyler Craig, author of Tyler’s Trading and owner of TC  Trading, Inc. Over the years I’ve educated hundreds of traders through my work with one of the nation’s leading educational firms. I enjoy writing and am a current monthly contributor to the Wealth Intelligence Magazine.  My writings have also been featured in Expiring Monthly and frequently show up in the Abnormal Returns Options Newsletter.  In 2009 I started Tyler’s Trading to share daily market commentary on stocks and options.

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