If you are someone who just buys miners for a 3+ year hold, you aren’t going to care about the daily gyrations of the prices of metals. This article may not be for you.
I have several tiers of investments. I do some junior miner long holds. Some of these I’m expecting a 3-5x, some maybe a 10x depending on what price point I bought at and where they are on the Lassonde curve. I then have some mid tiers I might be looking at for a takeover and these could be a medium hold time.
I then might do several tiers of call options – my long term 18 month or so calls where I tend to buy at the money or near the money and pay a high premium. I can hold these for months, or flip in a day if something happens and there’s a 30% increase. I then might buy options 3-6 months out where I’m flipping at 30% or so – no questions asked.
With the options I have, I’m trying to play some saw tooth patterns. What I have shown everyone a few times now is that every month, I’m seeing metals smashed down starting AROUND the 18th of the month. My hypothesis is that this is around the futures monthly options expiration. What I then see is immediately after the options expiration, a recovery period happening until the next beat down.
Here is the evidence for this – I haven’t cleaned this up recently, but here’s what this look like. I have saved this as my “beat down” chart for silver. Look at some of the plunges….
It is POSSIBLE this month may buck the trend. I want you to look at the dashed line at the bottom. In a bigger sense, this appears to be the channel bottom which has ranged from $22 to $30 going back over a year. Given we are near the channel bottom, I think there’s a TON of support here. IF this breaks, it could be a sharp V bottom sling shot up.
***************** Edit: I wanted to zoom out from 50,000 ft and show you were we are with silver. In the green circle, you see a channel. We are in a $22-$30 range over the last year. At the moment, we are at the LOW end of this channel, and most things I’m seeing have an inverse head and shoulder pattern. IF the technical charts are correct, we are in for a strong move up. Will it get all the way back up to $30 by Christmas? Maybe not. That’s only 10 weeks away. But – I don’t see it likely breaking below the channel. Doesn’t mean in cannot happen….
Meaning – we peaked around $23.50 yesterday, and it’s possible IF there is a beat down again, it may not go below $22.
But how much COULD it be smashed? IF we assume $22 is the floor, then you are looking at about a $1.50 smack down. That is roughly the average of the last 5 beat downs. However, we may have had a change of trend. You see yesterday silver peaked above the channel – which coincided with the 50dma. Today, I’m seeing the back test – will it hold the 50dma? Will it be smashed back into the channel?
I then take a look at the monthly options on the CME site. Take a look at the items highlighted in yellow.
Essentially, I’m looking for some large numbers at open interest. I cut this off around $26.90 just to keep this picture reasonable in size, but it goes up to like $50. The banks sell these options, then, they actually know where all of the stops are set. So while many of you keep a straight face and think Jeff Christian is correct, what you need to understand here is that the banks that sell these options get free money if they can stop you out. Meaning – where is the place they can get the most stops run with the least amount of financial energy?
As of this writing, we are at $23.21. It’s before the usual morning mini beat down, so by the time you read this we could have a $22 print in silver. My patterns show about the 18th or so beat downs begin, but this month the monthly options are a little later on 10/28. So – perhaps the beat downs don’t start until perhaps the 20th. Don’t know.
But what you can clearly see is AFTER the options expiration, you then see a recovery period. My thinking here is that the banks sell sell sell to knock people out of their positions, then buy back at cheaper to cover what they just sold.
While those who like to defend the futures market completely separate “contracts” from “silver”, the problem is that “contracts” set the price for the physical silver. This disconnect I think I cannot reach you futures people on. This entire system is a farce, but I also get it. The thing is – at times of physical stress, the contract system will break. The idea of the contract system is to kind of act as a liquidity sponge to keep the market price from jumping all over the place. However, banks tend to over-do the smash downs.
What? Yes – this monthly beat down some schmuck like me has found has been a piggy bank for banks. Do you think each month there is just all of this natural hedging happening? Perhaps the same date every month all of the miners in the world sell to bullion banks, and immediate the bullion banks hedge the price to preserve the value? No. This is a pure wicked evil greed scenario where the banks can SET THE PRICE, not “bet” on a “hedge”.
We then have exhibit 2 below.
This system now for the last 7 months I have been playing for options with grocery money. THIS month, after 6 months of testing, I laid down much bigger options bets and I sold at $3,000 profit. Now, if you look closely, I reached the top of the green circle.
Check out my chart from 9/27.
The green circle price didn’t change – but I extended out the days. We hit the $1.50 recovery, but it took until the 14th. I sold all of my options on the 13th about halfway through the rally. Had I held longer, my guess is now that it would have been about a $7,000-$8.000 profit.
Now, pretend I’m an MIT grad or Wharton grad and found this pattern, and I work for a firm that trades billions. Think about what they are doing with this pattern every month. I consider myself somewhat educated with 2 masters degrees, but I’m an outsider to the financial system. Maybe some hedge firm wants to hire me – email me! lol Point is – If I’m making a few bucks on this, people with deep pockets are swimming in these monthly profits.
This is original research by me. What I think I’m going to do some day when I have a few hours free is to try and back test this to see if this goes further before Aug 2020. My bet is when you look at a saw tooth pattern for a metals bull run, you may find pull backs with these teeth to be around options expiration. My question is then what fools play these futures options?
My GUESS is that during a STRONG bull move, these options run without smashes – because no one wants to short in front of a mack truck unless it is legit hedging.
So – IF you see RSI from august is off the charts, perhaps you know deep in your heart that there will be a flag forming, so THAT is the opportune time to smash? IF you are in a sideways channel for months or years, would it not make sense to buy at the bottom of the channel and sell at the top?
IF there is a metals smash this month – to me, this seems like it might be the LAST smash, which may result in a double bottom, and off we go. There is a possibility that this is end of pattern, and given how low we are and how long this has consolidated for, and the fact that bullion banks may be net long, that options smashes may no longer happen and we are clear sailing.
I am dipping my toes in and getting some positions in juniors now, still at about 50% cash after selling a ton of my options Weds. I am watching this channel and the 50dma. I don’t think sideways is going to hurt any juniors, but a smash down to $21 or $20 could create a seller exhaustion followed by a V rebound. In any way you call it, we appear to have bottomed or are close to a bottom. I think anyone that thinks we are out of the woods needs to at least consider there COULD be one last beat down this month before we are off to the races.
Meaning – I think I’m loading up on the 29th. Unclear when non-farm payrolls come out, but this tapering thing is starting and I just want to wait the next 2 weeks before committing. IF we clear $24.50 or so silver before then, I’d expect a $2 beat down and then off to the races.
Overall – just be careful there could be one last beat down. I will be watching the scorecard from the options page on the CME to see where the points of pain are that they need to smash to. IF I had to guess, we will end the 28th at or below $23.00-$23.25 given the call options here. This means any rally up before then may be smacked back down by the price setters.
So – IF you are thinking life is grand and you want to YOLO on 3 month options, wait until the 29th. IF you are looking at 18 month options for things like Fortuna, whether you buy them now or the 29th (if a smash down occurs) may not be a massive price difference, but you might lose 2 weeks of time. This far out on options with 2 weeks of premium isn’t much at all. For me, I don’t see THAT much of an upside move in the next few days to offset the risk of a POSSIBLE beat down starting mid next week.