• Market:  April 2006 Silver (SIJ6)
• Tick value: 1 cent = $50.00
• Option Expiration: 03/28/06   
• Trade Description: Bear Put Ladder Spread
• Max Risk: $250
• Max Profit:  $750
• Risk Reward ratio 3:1

Buy one April 2006 Silver 9.80 put, also buy one April Silver 9.20 put, while selling one April Silver 9.60 put, and also selling one April Silver 9.40 put, For a combined cost and risk of 5 cents ($250) or less to open a position.

Technical/Fundamental Explanation
Metals have gotten a lot of press lately due to some recent moves to new multi year highs. Silver in particular has grabbed even more headlines due to the silver ETF that is likely to debut soon. While we have been bullish and done well in our bull silver trades lately, we are seeing signs of a developing short term correction in metals. Both %R and RSI have recently issued sell signals, which in the past have been relatively accurate compared to other indicators. Seasonals also point to a probable consolidation near term. Seasonally Silver normally peaks in mid to late February and then sells off until early April. This trade is designed to risk as little as possible and at the same time give you a wide range within which you can profit. Note: this trade is short term on purpose! We are not overall bears in silver, in fact long term we remain quite bullish, we are simply looking for this otherwise hot market to cool and consolidate over the next three weeks. Those of you who are currently long Silver, or even other precious metals for that matter, could use this trade as a short term hedge against a pullback.

Profit Goal
Max profit assuming a 5 cent fill is 15 cents ($750) giving this trade a 3:1 risk reward ratio. Max profit occurs at expiration with Silver trading between 9.60 and 9.40. The trade is also profitable at expiration if the Silver is trading any where between 9.75 and 9.25(break even points) which means we have a band of 50 cents in Silver that we can profit in.

Risk Analysis
Max risk assuming a 5 cent fill is ($250). This occurs at expiration with the Silver trading below 9.20 or above 9.80.

Disclaimer
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.

Matt Odom is the Managing Partner and Energy Analyst and Derek Frey is Head Trader at Odom & Frey Futures & Options.