Tune into today’s Metals Minute for key levels and actionable trade ideas covering your favorite Precious Metals, overnight developments, and what to watch for every trading day.
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Overnight, the Precious Metals are correcting after yesterday’s sell-off. Usually, I would use the term “bloodbath” to describe the Wednesday price action on a 6% sell-off in Copper, 3.3% in Silver, and 1.8% in Gold, but the reality is that we were preparing for this moment. Many of you have been patiently waiting for a pullback to add or establish positions, while others actively trading in the market have been raising stop losses. Many of you have bought call options and call spreads to avoid having the FOMO of missing out on another potential run to $50-60-75/oz.
Example of a Tactical Strategy
Fifteen years ago, I ran the “Strickly Options Hotline” for one of the largest retail commodities companies in the world. If a client, for example, were unsure about the duration of a move in a low volatility environment, I would suggest broader call spreads 3-6 months out to give the commodity time to develop, such as the $35-39.50 Silver spread I laid out as an example.
Again, this is Not a recommendation.
Take Crude Oil. You have one of the lowest spec and fund longs for 2024. (Simply put, all the money is trading elsewhere.) The market remains in a tight range between the 50 DMA and the 200 DMA. Most professional traders will scalp that range, while options traders on the long or short side will build longer-dated calls and put spreads in anticipation that once the market breaks that range, the move will be explosive when participants re-enter the market.
The directional bias varies from commodity to commodity, and again, this is for example purposes.
The second element you want to look for is from the Commitments of Traders report, which shows how long or short the participants are. To wrap this up, I would look for a low-volatility market with a high concentration, say “record shorts,” which are often found on grains or soft commodities, where the fundamentals could easily switch. So, if you had coiling action in a commodity such as “corn, with record shorts in place,” a sudden weather development could drastically change the fundamentals, leading to a “short squeeze,” and that is where calculated call options or call spreads could be beneficial.