Bought 3 PAA.TO 10DEC Puts 25.00 @ $2.27, Mark $24.75

US Dollar looks oversold (Figure 1). Of the few commodities that I follow, silver looks to be weakest (Figure 2). Thus, I look for a short based on silver. I chose Pan America Silver Corp. (PAA.TO) because it looks to be the weakest of the silver miners (Figure 3).

In particular, referring to Figure 3, I highlighted the current price moves versus six months ago. The price movements in the two boxes look similar. Thus I am looking for a big dive in PAA soon with these puts options.

I entered today as PAA is testing its $24.80 resistance. Next resistances are $25.00 (the gap) and $25.15 (38% Fib level in the July dive). As such, there are a couple of safety cushions in case this doesn’t work out.

My mental stop is $1.30 on the premium. Through time decay (around October if we trade sideway from now), price appreciation, and mostly a combination of these two factors. I figured I have about a month’s time to find out if it can break the $25.15 level.

Risk is thus ($2.27 – $1.30) * 100 * 3 = $291 + $25.90 commission = $316.90 = 3.3%. Once again, that’s higher than what I’d recommend. But that’s just the worst case scenario.

We should know soon enough if silver can break lower as it is trading against a descending trendline as shown in Figure 2.

U.S. Dollar Index

Silver

Pan America Silver Corp. (PAA.TO)

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