Play Silver Volatility With SLV Bull Spread

IVolatility is a leading provider of options data, analysis tools and
best-in-class volatility charts. The move upward by gold futures last week
suggests a technical case can be made that the active pattern is a complex Head
& Shoulders Top with the head at the December 7 high of 1434.10, basis the April
Futures contract. Options trading investors should consider a bull call spread
in iShares Silver Trust (NYSE: SLV ). Silver is giving a different picture as it
reversed upward after a minor correction and resumed moving higher, closing
above the January 3 high of 31.275. Now at 32.30, basis the active March Futures
contract, it negated the Head & Shoulder Top pattern. SLV closed on Friday at
31.79. Last Thursdays close above the January 3 high of 30.44, cancelled the
previous SLV Head & Shoulders Top pattern. However, there is now a divergence
since gold still remains in a potential Head & Shoulders Top pattern and copper
did not exhibit the same strength last Thursday and Friday. Silver is breaking
out, a divergence from gold, sending mixed signals. The divergence with gold is
a concern, but if we are going to trade what we see and not what we think, we
should go with it. The current Historical Volatility is 31.25 with an Implied
Volatility Index Mean of 35.40 for an IV/HV ratio of 1.13 and a bullish put-call
ratio of .35. Consider this bull call spread. B/S Qty O/C USym Exp Strike P/C
Price IV B 1 O SLV Apr 32 Call 1.65 35.10 S 1 O SLV Apr 32 Call .71 37.33 Dr .94
All prices are as of Friday Feb. 18. Check todays option chains for current
pricing. Due to the divergence with gold we suggest limiting the trade size as a
risk control measure and setting the SU (stop/unwind) at a close below the
January 3 high of 30.44 the previous head of the negated Head & Shoulders Top.
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