Option Sellers Target Silver – Video Market Update – May 01,2016
Good afternoon. This is James Cordier of OptionSellers.com with a market update for May 1st. The commodity bear market of 2015 has certainly ended here in the first and second quarter of 2016. Quite often, as the dollar weakens, a lot of investors do go into commodities. They usually start with precious metals and work their way down. I think gold was the first market to rally this year, and now we have corn, soybeans, cocoa, sugar, and crude oil all following along very nicely.
The fundamentals in commodities right now have improved slightly, and the thinking there is that the Chinese economy has stopped falling and is about to get slightly better. How many commodities do they need, do they need steel, do they need iron ore, do they need copper? Probably not; however, they did let a lot of their surplus of supplies dwindle, and now they’re probably restocking and that’s probably a big push to the upside right now in commodities.
The other driving force to higher commodity prices is the weaker U.S. Dollar, of course. So many times we heard that the Federal Reserve was going to be raising interest rates in 2016. We began the year they were going to raise four times, then it was three times. Likely now, with an election season in full swing, the Federal Reserve might be raising rates once and that would be later this year. This, of course, has put downward pressure on the U.S. Dollar, and, of course, that is the other catalyst for commodities heading higher.
The supplies of the different commodities that we’re following right now, like crude oil, at all time record highs here in the United States. Soybeans at extremely high levels going into a planting season here in the United States. These have all caught fire recently. Basically, commodity hedge funds push the market in the direction most easily traveled, and with a weaker U.S. Dollar that price has been to the upside. We think that fundamental factors in commodities, like silver, crude oil, and soybeans, will wind up weighing these markets down later this year. We recently took short positions in soybeans. We recently took short positions in corn and crude oil.
We’ve been strangled in gold and silver recently. The silver market rallied sharply here approximately $2, from $15 up to $17 an ounce. We wound up rolling the calls side of our strangles up several dollars in many cases, and now, behold, we’re looking at strangles far out-of-the-money. So often, commodities are usually 20-30% out-of-the-money as far as selling options, premium, both calls and puts, and right now, going into May, we’re able to sell silver calls double the price of the current level. We think that this is going to be certainly low-hanging fruit for 2016.
Also, on the put side, we’re looking at put premium that is very attractive, which is 30-35% below the market. In many cases, we’re looking at silver strangles that are $25 wide and a commodity that is trading at $17. Opportunities like this don’t come along very often, but they’re with us right now and this is something that we’re certainly going to take advantage of. The coffee market we’ve been short practically all of 2015-2016, and we think that is going to continue to be a very good short. That commodity is in great abundance like many of the other commodities will be later this year, and we think that prices will reflect those larger supplies.
We think that 2016 right now is the beginning of the end of the bear market in commodities; however, we also see a lot of sideways action going into the third and fourth quarter, especially for crude oil, which has now rallied north of $45. We recently started selling crude oil calls for the winter time frame. That is usually the weakest moment for crude oil over the last several years. We’re looking at calls between $75 and $80 a barrel, levels that we certainly don’t think crude oil will get to, and we think those are going to be very good sales, as well.
As always, it’s great chatting with you, and looking forward to doing so again in 2 weeks. Thank you very much.