Silver (NYSE: SLV) has been trading in a 4 point range for what seems like months.
It hits $22 and quickly retreats to roughly $18… rinse and repeat.
Will it continue its sideways price action, or will the commodity ETF move higher or lower over the next month?
Does it matter? And can we truly answer such a question with a definitive answer anyway?
As an options trader and a self-directed investor I really don’t care. I only care about growing my portfolio through income generating strategies.
But let’s get back to silver.
As I stated before silver has traded in a fairly tight range ($18 – $22) after its short lived rally last August.
So, how can we take advantage of the stagnant price action?
Look no further than a range-bound trade/investment known as an iron condor.
An Iron Condor strategy is a non-directional options strategy that profits when the option on the underlying stock or ETF of your choice expires within your chosen range at expiration.
The basic premise of the strategy is easy: you choose the price range of the trade. Increasing the range will decrease your potential profits, but will increase your likelihood of success.
So, if SLV has been trading between $22 and $18 over the past few months and we think it will stay around that area over the next 36 days we can place an iron condor trade with those parameters and make 11.1%.
This means that with SLV currently trading at $20.37, the liquid commodity ETF would have to breach the breakeven levels of $22.20 or $17.80 level by April 18th (33 days) before the trade begins to take a loss.
It would take an 8.9% move to the upside or a 12.6% move to the downside over roughly a four-week period before the position is in jeopardy of taking a loss.
Best of all, the probability of success on the trade/investment is a staggering 85%. Yes, that means that there is only a 15% chance that SLV will move outside the $22.20 – $17.80 range over the next 36 days. I like those odds.
When the market is going nowhere fast, the Iron Condor provides safe returns that you can capture month after month – with very little risk.
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