FxWirePro: XAG/USD not a buy yet; prefer spreads over naked puts

The silver commodity has been flowing in the downtrend since mid May.

What could propel the prices of this precious metal is that in the event of unsteadiness in equities and fixed income instruments buying interest could be seen or even in case of weakening in the dollar.

There have been chances that the increase in the interest rates by Fed can feed fuel to rising price momentum; however, until then the price of the silver will continue to crash.

On EOD charts, RSI (14) shows divergence on falling prices, currently RSI trending at 37.2236. And in addition to that volumes don't confirm the falling prices are reasonable.

Even though %K line crossover occurred above 25 levels, oversold pressure scene can't be isolated with stochastic curve alone. We think enough confirmation for price recovery is required at these levels.

But on hedging perspectives, if traders expect further slumps in this pair we advise staying away from naked put options and deploy debit spreads instead.

More importantly, Put instruments have been trading extremely costlier when you've to compare option prices with NPVs.

Therefore, buying 7D slightly In-The-Money 0.62 delta puts with negative theta value and parallely short 7D (1%) Out-Of-The-Money put with positive theta is recommended.

The combined execution should have 0.25 delta and for net debit.