Silver Breaks Out to Close Over $30 & How I Am Trading this Move

Update - Dec 30, 3:40 AM EST:  No, I'm not nuts nor an insomniac.  Still posting from Europe this week where the market has been open in Germany for the past 40 minutes or so, and I wanted to provide a status update to what I wrote about below in yesterday's post.  Though the thugs at JPM did come in and try to take down the silver market at around 8:20 AM EST (yesterday), the silver bulls fought back and brought us back up close to the early December highs at $30.70, where we hovered for most of the day.  Fearing a big correction, I did end up taking 40% of my position in SLV Feb $32 calls off the table at a tidy 90% profit, leaving 60% in play should we get a further rise.  That looks to be the case right now, as silver started really catching a bid at the Europe open....putting in a new high of $30.88 just a few moments ago.  It's at times like these where I wish I didn't make the conservative move yesterday, but I'm still concerned that the manipulators will make one more serious raid on price before allowing us to cross into the $31's, so I'll be watching and waiting.

Here's a shot of the overnight action in Asia (5 minute candles), where price rose slowly and steadily throughout the session, and then the big pick-up when Europe opened. 

 Yesterday's original post starts below the line.  Good luck - SM.
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Silver has finally broken out of the bullish pennant that had been forming since price last broke over the $30 threshold, but we have yet to take out the intra-day high posted earlier this month at $30.70.

So has the next leg-up in the silver rally begun, or are the manipulators getting ready to stomp us back down?  I think the chances are 50-50 for both alternatives, but in the case of the latter, I would see support at $29.50 as another buying opportunity.  As mentioned in my last post, silver will continue to rise, as will most all other commodities....this outcome is virtually inevitable in the face of  Bernanke's current plans to continue printing money to seemingly infinity. 

Here is the chart for spot silver as of 7:10 AM EST today, and as you can see, we are currently making a run towards the former intra-day highs around $30.70.  (Click to enlarge)

Over the past several weeks and months since I began actively posting on silver, I've received numerous emails asking me what sort of silver I buy, and how I'm trading this market.  I posted answers to the former in a previous post, but as for how I'm trading the silver run, that is another story entirely.

First off, let's define the difference between investing in silver and trading silver.  In my humble opinion, if you want to be invested in silver, the only way to do so is by purchasing the physical coins and/or bars.  Many people claim that because they own the silver ETF, SLV, or they own and roll silver futures contracts, that they're invested in silver.  I say no, you're not.  Why?  Because you are subject to counter-party risk.  You are relying on someone else to actually deliver the silver to you, should you ever want to take ownership of it, and as I discussed at length in a previous post, so I won't repeat it all here, this may likely be impossible.  If however, you have purchased the physical silver from a reputable dealer, and you store it yourself (as opposed to one of those precious metals vault services), you have zero counter-party risk. That, is being invested in silver.

Trading the silver market on the other hand is something entirely different, and for doing this, I use SLV on a regular basis....in particular, call options on SLV.....because I don't ever intend to take delivery of the physical silver represented by the shares of SLV my options reflect.  In this case, I am purely speculating on price movement of the metal, and taking my profits in dollars.  I did this towards the end of August, buying the December $25 Calls when the spot price for silver was still trading south of $19.  I took profits several times along the way, with the last batch of calls that I sold netting me well over 1000% profit. 

So what do I do with the profits?  35% I save to pay taxes, 35% I take out of my brokerage account and use to buy more physical silver, and the 30% remains in my brokerage account for other speculative ventures.   At least, that is how things shook out this last time.

Currently, I am back in SLV Calls....the Feb $32 strike to be exact.  I purchased these a few days ago at ~ $.50 and they closed yesterday at $.84, up 68% so far.

I think this next leg-up will take spot silver prices to $32 - $34 over the next two weeks, but I'm concerned that the manipulators will try to exact another pound of flesh on the longs before they completely give up the $30 area, so I will be watching this morning to take 30 - 50% of my current position off the table as we approach the previous high at $30.70.   If we do get pounded back down from the highs, I will reinvest the profits at $29.50 or so.  This is where I would recommend getting into a position if you're not currently in, but want to play this next potential wave up.  If we don't get pounded, I'll still have at least 50% of my position in place and will ride it out to my target area.

For new readers, my previous posts on silver are listed below (in the order they were posted) and will likely answer any questions that may have popped up after reading this post.

http://singlemalt-trader.blogspot.com/2010/11/hi-ho-silver-away.html

http://singlemalt-trader.blogspot.com/2010/11/silver-update-to-sundays-post.html

http://singlemalt-trader.blogspot.com/2010/12/look-out-silver-could-go-parabolic.html

http://singlemalt-trader.blogspot.com/2010/12/long-over-due-update-on-silver.html

In closing, here is a pic of what I'm sure JPMorgan would like everyone to believe their silver vaults look like, or those of the COMEX, but in reality, the last time the official custodians had vaults like this was probably around the same time that this black&white photo was taken...lol.

Continue to drop me emails if you have additional questions.