In my eyes, silver futures are one of those giant, legendary future contracts. Over the years, I have seen silver futures responsible for some of the most vicious/amazing moves I have ever witnessed - depending on which side of the move you were on, either adjective would fit the bill.
Back in April of 2011, silver futures flirted with the $50.00 mark. Since then, this market has been in a steady decline, and recently lost quite a bit of volatility. This will actually be a benefit for my intended strategy. I feel that we still have some downside left in this market before a possible turn around. I am looking for a retest of the $14.00 level, perhaps $13.62, as can be seen in the chart below. My speculation is that we may actually see a turnaround after that, but that is a topic for another analysis in the next few weeks.
Heikin -Ashi Daily Chart of Silver Futures
Normally, I do not like to buy options, as most options expire worthless. However, because of the low volatility, silver put options are under priced in my opinion. Leading me to look at a bear put spread. (I guess the fact that I have seen some big overnight moves before in this market, places my comfort level on the limited risk option play.)
I am looking at the following bear put spread, buying the $14 put and on the same ticket selling the $12.50 put for the December 25th expiration. The cost will be approximately $1750.00, and your maximum profit potential is $7500.00.
This will be the more conservative strategy, but if one has experience and risk appetite, you can get creative and perhaps sell some calls to generate cash to purchase puts. You can initiate a similar bear put spread but spend much less by buying ratios (buy one $14 put and sell two $12.50 put), etc.
To answer the question in the subject of this quick analysis: Has the giant Awakened? I don't think so. I think he started to toss around....perhaps one more leg down before it gets to price levels that are attractive enough to wake the giant from his slumber.
Disclaimer - Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.