SLV/GLD Ratio

The ratio is in free fall.

Advertisements

SLV 20ema Retracement

Silver margin requirements raised leading a large selloff in /Si today.

SLV seems to find support at the 20ema.

SLV Open Interest

The blue boxes are JAN 13 expiration. You can ignore the red JAN12s. This is a graph of open interest in the CALL and PUT side respectively. I’ve learned the best way to interpret this data is that a larger open interest implies a speculative short contract position. This is a zero-sum market but the long is hedged and traded away. A position of that size which is that deep ITM likely had the majority of it opened as a short position. Since it’s a sell you look at this and assume they’re betting that the underlying will go below the CALL strike and stay above the PUT strike by a certain date.

When you analyze this trade, taking into account the ratio between the CALL and PUT open interest you see a prediction for a move to 20 over the next 2.5 years. The ratio spread is similar to a strangle but you can see they leveraged the ratio to move the steepest losses to the range of 20 to 0. The payout is at it’s highest at $20/sh where it pays 8:1 and breaks even between 4.32 and 46.17. It’s closing price on 4/26/11 was 44.03.

SLV Levered Position

Position

Components (w/o JUL Vert)

Payout

Spread Adjustments 3/4 – 3/11

Spread Adjustments – 3/3/11

Wednesday Trades

Friday Trades

Thursday Trades

Thursday Update

  • Metals are up after their pullback due to increased margin requirements.
  • Yields are up causing a drop in Treasury prices across the board.
  • Looking for a possible retracement back to the broken TL on the S&P 5m chart here.

Took some profits on the gap up in the opening, got out of $USD on weakness, started a position in SDS on market strength to protect profits still on the table.  We feel bullish today on a pullback that does not break support levels on the SPX 5m chart posted above.  Will continue to take profits into strength.