Options Jive

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Heavy Metal Trades

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Gold and Silver both hit 5 year lows this past December and are well off their 2011 major highs but what you want to know is if there is a trade opportunity so we are here to provide some background on these precious metals and to spark some ideas. This is info every trader can use.

A graph of the price of Gold from July 2011 to present was displayed. It showed gold and silver hitting five year lows near the end of 2015. Does this present opportunities for traders?

The first step is knowing the basics. A table comparing the Gold and Silver futures (/GC, /SI,) and the Gold and Silver ETFs (GLD, SLV,) was displayed. The table included the symbol and size of both.

Some futures are not the best vehicle for smaller traders. ETFs can sometimes be a better choice. A list of the advantages and disadvantages of the metal ETFs was displayed.

A graph comparing the Silver and Gold daily percentage returns was displayed. There is a strong positive relationship between Gold and Silver, the 3-month correlation is 0.78.

The Gold/Silver ratio tells us how many ounces of silver equal 1 ounce of gold. A formula to tell us the Gold Silver ratio was displayed. If we think the ratio is increasing we buy Gold and short silver. If we think the ratio is decreasing, we short Gold and buy Silver.

A graph of the Gold/Silver ratio from 2013 to present was displayed. The graph showed that the ratio was on the higher end of its range. Another graph comparing Silver’s implied volatility (VXSLV) to Gold’s implied volatility (GVZ) from 2013 to present was displayed. Silver is usually more volatile than gold.

Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the takeaways and other insights you need to know about the correlation between the Gold and Silver markets and how to trade the Gold/Silver ratio.

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