Financials (XLF) led the bounce back today, a day after leading the slide lower. Today’s action was a nice sign of strength but as we have felt all week, the moves occurring during this light volume trading are immaterial at best. The magnet effect that the year to date break even level on the S&P500 seems to be having is comical. It’s almost like there is a puppet master pulling strings somewhere making sure we finish the year completely flat.
What caught our eye today? The potential reversal silver. Silver has been obliterated the month of December, losing nearly 20%. At the open, silver appeared destined to resume its downtrend selling off nearly 3%, but by the close it was a much different story. Silver actually went on to finish the day green, bouncing more than 4% from its low. This is a good sign for the commodity space, which with the exception of oil, has been very weak lately. Today’s low gives traders a clear reference point to get long against, meaning you should use today’s low as a stop loss point for a long position.
With SLV (the ETF that tracks the spot price of silver) closing at $27.08 the January 21 ’12 25 strike call is looking attractive. The premium is going for $2.42 which means the breakeven on SLV for this call is $27.42 (add the premium to the strike). Based on today’s close, that’s factoring in a 1.2% increase in SLV, so we feel good knowing we’re not paying that much in premium. While not paying alot doesn’t guarantee gains, it does guarantee fewer losses in the even the trade doesn’t work in our favor. (Read more on options premium here).
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