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.
[caption id="" align="aligncenter" width="570" caption="U.S. Dollar Index"][/caption] [caption id="" align="aligncenter" width="570" caption="Silver"]1[/caption] [caption id="" align="aligncenter" width="570" caption="Pan America Silver Corp. (PAA.TO)"]2[/caption]