Back Derivatives Strategy

Silver (SLV) Catch-Up Trade Idea

Published on February 5, 2025

Jeff Jacobson

While gold (GLD) has broken out and continues to act well, silver (SLV) remains below the highs hit in October. With many people asking about the relative underperformance of silver to gold, there is some recent precedence to suggest we could see a silver “catch-up” trade over the next few months.

With the SLV/GLD relative spread recently having tested the 2-year support lows I looked back to see how both silver and gold performed off this level to see how both performed. In both cases where the relative spread moved sharply higher off this level (+16% in March 2023 and +25% between Feb 2024 and May 2024) it was silver appreciating at a much higher clip to explain the sharp move higher in the spread. Back in 2023 silver gained ~ 26% and in 2024 silver gained ~ 44%. It is also worth noting that gold also rose in both cases, but just at a much slower pace.

Given the continued bullish view that 22V’s Head of Commodity Analysis, Colin Fenton, has on silver ($39 per oz PT which is ~ 20% above the current level), coupled with the potential for yet another catch-up trade to gold off this level, I like the setup to add upside SLV option structures at this time. In addition, John Roque, the Head of Technical Analysis for 22V also remains bullish on Silver.

Trade:
Sell SLV May 26 puts
Buy SLV May 30/36 call spread

Costs ~ $0.80 (SLV 29.34 ref)

Trade Details:

Selling the 11%+ downside May put to buy the 6-point upside call spread that starts only 2.2% above current levels
The 26 put level lines up with the recent lows for silver, while the upside call spread is capped 23% higher (keeping in mind the 20% upside spot silver PT that Colin Fenton has)
Have seen silver stage sharp rallies on both an absolute basis, as well as relative to gold, the last two times the silver/gold spread has gotten to these levels
3-month implied vol has moved up a bit of the lows, which is why I favor selling that downside put to buy the upside call spread
Targeting a breakout above the October highs in silver, especially now that gold has broken out and continues to act very well
Structure can be added to an existing long/bullish silver position, or as an entry-point trade (with a sizeable cushion to the downside)

Please contact me or the 22V trading desk for updated pricing and execution capabilities

Silver/Gold spread recently touched the 2-year support lows. The last 2x this happened we saw the spread rise sharply (led by silver moving much higher)

Silver chart – selling the 26 put (11%+ below current levels and at the Dec/Jan lows) to buy the upside call spread that starts about 2% higher

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