I’ve lost the illusion of sensing I can see good opportunities on the grain markets.  And, the softs seem a wee bit off kilter for my tastes.  So, I’m pairing my focus at the start of this week to metals, currencies, and indices.

Options traders remember we have expiration coming on Friday!  The next expiration will be December expiration at which point the smarter trading community will already be taking position for the new year’s trend.  It’s not too early to start thinking about 2010.  This markets may be able to run higher, but, not forever.

While I’m on the subject of options, keep in mind what sort of traders will be rewarded this expiration.  Let’s just assume our more sophisticated traders are using rather dumb market neutral strategies.  Let’s assume the more naive players have a directional bias.  So, roughly speaking the majority of “smart” trades would have gone on around October 16th.  Let’s assume sometime around 10-15 days into the trades, IF AND ONLY IF, they were profitable, they would have taken them off.  Otherwise, smart money would be looking for those markets to be within a similar price range as we close out those contracts which will expire this week.  At which point those markets will be free to explore new ranges in ways they haven’t previously been able too.  One market near and dear to my heart is the metals market.  If this logic pans out, I could see perhaps one more sucker’s rally before a decent breather.  Time will tell.

General outlook:

As always, this is purely an empirical and a theoretical exercise.  Trading is extremely risky.  If you were to trade, you should only ever do so with money you can afford to lose.  Be well, be safe, and be warm.

When I put the trade on Monday morning, the market was trading around 17.46 on the underlying.  I was interested in a speculative trade, looking to catch between 5-15 days worth of time decay below present value.  The trade I put together looked like:

Buying 10 Nov 17 and 15 Puts while Selling 20 Nov 16 Calls.

Here is a look at the analysis on the trade, roughly as it looked when I entered (white line).

The light blue line (shaped much like a triangle), represents the value of the position at expiration.  If price hangs around these levels, I’ll be exiting around the November 14th to 19th timeframe.  That’s roughly 17 days from now.  Odds are that won’t be the case and I’ll just have to manage it as the market runs around.  Regardless, just another way to trade silver.  I hope it helps.