How to Pocket a 30-Day 100% Gain on Silver

In my free Profit Takeover service, we go after what I call asymmetrical returns. If that sounds complicated, hear me out. It isn't all that complicated, and once you collect on the trade I'm going to recommend, your bottom line will thank you.

Every trade has its risk-reward profile, but asymmetrical returns come when you turn that profile radically toward "reward." It's a trick Wall Street uses all the time - one of their favorites, actually.

You don't have to reinvent the wheel to do it. You can go after asymmetrical returns with the same standard trading methods you're used to using.

The trick is to trade the right options on the right kinds of stocks - more on that in a bit. For today, I've put together the perfect example of a trade with asymmetrical return potential - it's one of the biggest most popular exchange-traded funds there is, the iShares Silver Trust ETF (NYSEArca: SLV).

With the way the market's trading right now (read: scared to death of inflation), I'm seeing some activity in SLV that's uncovered an extremely promising option.

First, we'll look at how to trade it, and then I'll show you the trade...

Here's a Quick Refresher

There may very well be some experienced traders reading this, but the truth is, no one's born knowing how to do this stuff, so it won't hurt to go over the basics.

Now, options are incredibly powerful profit-making tools - we could talk for hours, and I could tell you some war stories from my time in the "Pit."

But for today, we're just going to look at calls, because the SLV trade I'm going to recommend in a second is, in fact, all call option.

So, a call option... In very simple terms, a call gives the buyer the right, but not the obligation, to buy 100 shares of the underlying stock for the specified price, the strike, before the option expires. The price you pay for that option is called the premium.

An option's value is affected by time decay, the rate at which the option loses value as expiration approaches, and its intrinsic value. In simple terms, that's the difference between a stock's current price and an option that's in the money (ITM) which, for a call, is above the strike price.

That's Options 101.

But a lot of experienced traders I know don't actually exercise the calls; they don't actually use the options to buy the underlying shares, though I guess they could if they wanted to.

Instead, these folks buy calls on a stock they think is going to rise, then sell the option at a higher price for a profit if and when it does.

Options Trading Guide

There's a surprising secret that separates trading masters from the folks fighting over Wall Street's table scraps.

Options Trading Guide

There's a surprising secret that separates trading masters from the folks fighting over Wall Street's table scraps.

Again, I get into the nitty-gritty in Profit Takeover, including how to manage risk and select the right strikes, but, very briefly, there are three things that can happen.

  • If the stock moves lower, against you, you'd have a choice: to see how it plays out until expiration or take a small loss on the premium you paid.
  • If the stock doesn't move much either way, you can, again, see how you fare by letting the trade play out, or you could sell to close your calls and put whatever you make toward recouping the option's premium.

Now, this next, third scenario, is where the magic happens; it's the ultimate...

  • If the stock goes much higher, the option has attained high intrinsic value - the (higher) current stock price minus the specified strike price. At that point, assuming there's plenty of time value left, you can sell to close the position and pocket big profits. That's what we'll be going after today - and every week, should you join us at Profit Takeover.

That's the very basic stuff, which tells you what you need to know to pull off my recommended trade today on the iShares Silver Trust ETF (NYSEArca: SLV).

Why SLV Is Offering Asymmetrical Returns Now

Unless you spent Tuesday on a mountaintop or asleep, you know the market's freaked out about inflation. Gas prices, food prices, lumber prices - up, up, and way up. Volatility is surging, too; my colleague, Tom Gentile, has uncovered a volatility "surge" pattern that's been seen to generate extreme profit potential, sometimes in as little as a few days. More on that here.

Historically, precious metals like gold and silver have been considered inflationary hedges - they've traditionally attracted money when the stock market starts to get concerned about prices.

But here's where they differ: people have been piling into and jumping out of gold throughout the entirety of the pandemic, sending the SPDR Gold Trust ETF (NYSEArca: GLD) on a tumultuous up-and-down ride over the course of the past year.

Meanwhile, SLV has been slowly but surely rising, up over 76% from a year ago today.

What does that mean? Well, GLD isn't a great recovery play -- but SLV is. GLD options are expensive, and its performance is unreliable, whereas the SLV option below is cheap, and directionality looks better. That's the big key to asymmetrical returns.

Against this backdrop, I'm looking to buy to open SLV June 18, 2021 $26 calls for about $0.84.

(Now remember, stocks, exchange-traded funds, and option prices are fluid and move quickly, so the prices I see may not be the prices you see. Never trade blindly; always adhere to your own personal risk appetite.)

Back in February, SLV came close to reaching $28. Today, it sits at around $25. I see this ETF hitting $30 eventually, but in the short term, we're looking for a pop back to $28.

Plus, the CBOE Silver Volatility Index (VXSLV), which is essentially the VIX of silver, is running relatively low right now, meaning implied volatility (IV) is on our side.

I expect this option to double or more in the next month or so, handing out an impressive, fast, asymmetric return for what you'd risk on it.

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