TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES. 

OPTIONS PLAY: COMEX SILVER FUTURES AND THE FOMC

On the heels of the FOMC announcement (1/25/12, 11:30 a.m. ctrl), COMEX SILVER FUTURES spiked once again.

MY ANALYSISFundamentally, as the Federal reserve announced on Wednesday that it will keep interest rates low for an extended period of time, perhaps through 2014, the Comex Silver Futures market rallied almost immediately. In fact, the market had a trading range of $1.88/ounce on the day with a low of $31.52/ounce and a high of $33.40/ounce. That vast majority of the move came right after the announcement at 11:30 a.m., when over the next 30 minutes Silver rallied exactly $1/ounce from a low of 32.03/ounce to a high of $33.03/ounce. Wednesday Silver settled at $33.12/ounce, the highest price since December 8, 2011.  This, in my opinion, makes for a very exciting day in the market. Especially when you take into consideration the leverage that comes with trading futures. With the contract size of one Silver Futures contract being 5,000 ounces, a $1 move in the futures price is equivalent to a $5,000 dollar change in contract value. That means from the low to the high of the day on Tuesday the actual cash amount was $9400 dollars. Remember that leverage can work for you and against you AND options and futures do not move in tandem. (Note: the CFTC defines Leverage as the ability to control a large dollar amount of a commodity or security with a comparatively small amount of capital)

The outside market influences of this Silver Options Play are three-fold with the U.S. Dollar Index, the Euro Currency, and the S&P all playing a potential role on Silver's movement. Typically and historically Silver and the U.S. Dollar Index have an inverse relationship. As the USD Index moves higher or lower the Silver market tends to move in the opposite direction. So the USD should be watched. Recently I am of the opinion that the Euro Zone and the Euro Currency futures have been the driving force for the USD Index. On the move higher of the USD Index over the last several days, it's been the fall of the Euro that's pushed the USD Index up due to the Sovereign debt issues in my view. So the Euro Currency should be watched. Finally, Silver Futures trade as both a precious metal and an industrial metal, hence the relationhship with the S&P. The industrial aspect of the metal can cause the Silver market to move in the same direction as the S&P because if the market is doing well there can be the idea that manufacturing is up and Silver can be used in manufacturing. So the S&P should be watched. All three of these outside markets can have an impact on my bullish view of Silver. It's my belief that this is just the start of a upward trend in the Silver market and it's nice when the fundamentals match up with my technicals, but it's the ladder that I use to present recommendations and option trade strategies to my clients.Technically, I see the Comex Silver Futures market still in a SUPER-TREND higher as the market trades above both the 9 day SIMPLE MOVING AVERAGE and the 20 day SIMPLE MOVING AVERAGE as the indicators both point higher on sharp angles. Another important technical in my opinion woul be the new high for the move that Silver made here on the last day of the chart. This particular move started started back on December 29th when the market bottomed at $26.14/ounce. Notice on a daily chart that each bar represents a day. Finally this is also the highest price for Silver since back on December 8th. See daily chart below.

Additional charts, studies, and commentary can be found at:  http://markethead.coM/2.0/free_trial.asp?rid=McKinney

OPTIONS PLAY

A potential play here could be to buy May Silver Bull Call Spreads or May Calls. Another potential play could be to sell deep out of the money puts to collect premium. Either play does involve substantail risk and is not suitable for everyone. When we buy Call Spreads or Calls we also buy in a 3 to 1 ratio, a Put to help protect us against a MAJOR correction in the market. For the details on strike prices, expiration dates, size, and exact risk please contact me at mmckinney@zaner.com or phone me direct at 312-277-0115.

FOR 25 OPTION STRATEGIES CLICK HERE:  http://www.zaner.com/3.0/mmck.asp

WE ARE ALSO FOCUSING ON COMMODITY OPTIONS IN U.S. 30 YEAR TREASURY BONDS, GOLD, OIL,

GRAINS, SOFTS, and INDICES.   

FREE QUOTE- "Cheers to life, love, and loot." -Captain Morgan

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION