3 Stocks To Trade Inflation

Hey Traders,

If I had to pick a theme of this week it would be …


Yes, the 31-year high inflation numbers, and high CPI, definitely shook investors and scared the VIX off its recent lows.

However … here at Option Pit, we’re been hammering home all week that the answer to inflation is to TRADE IT.

Our Head Income Trader Bill Griffo has been doing exactly that for months now (yes – for months, inflation has been creeping up on us this whole time!) and it’s scored him the best track record out of anyone here at Option Pit.

He’s opened up a new program, Power Income Trader, specifically to help Option Pit members PROFIT from inflation.

Griff isn’t the only one trading inflation, of course.

(Even though I will admit he did ‘inspire’ several of the names on this list!)

Here’s 3 inflation names I like.

iShares Silver Trust (Ticker: SLV)

Before I dive into the specifics of SLV, let’s take a minute to go over why commodities – and specifically silver – are set to skyrocket as a result of inflation.

First of all, commodities at large are seen as a way to hedge against inflation because inflation means rising prices, which means people are paying more for commodities.

You might think commodities have already gone up a lot … 

Well, we haven’t seen anything yet. Compared to the amount of money in the S&P 500 (Ticker: SPX) there’s only a fraction of that currently in commodities.

As inflation gets more and more “real,” investors are going to be turning increasingly towards real assets as a way to protect and grow their wealth.

Now, why silver, specifically?

There’s a few reasons. First of all, silver is also a monetary metal, the same as gold. As the dollar loses value due to inflation, physical silver will gain value. 

Adding to that, as banks and governments continue to increasingly be required to have physical silver on hand as backing for currencies, further driving up demand.

Now, what gives silver a special edge is that silver is going to be needed for the green revolution; lots of green tech will require silver, and demand is going to move higher as the country (and world) adopts more and more green initiatives.

SLV is an ETF that is actually backed by physical silver.

Looking at the six-month chart, SLV might not at first appear to be an immediate “buy” …

Chart courtesy StockCharts

But remember, inflationary pressures, monetary pressures, and industrial pressures could all serve to boost SLV higher.

And notice that SLV actually broke out and gapped higher on Wednesday, and finished the week with three up days in a row.

According to Griff, SLV could hit $30, or higher, by the end of 2021.

Options traders are already piling into SLV, and the shares saw 198% of their normal daily volume on Friday, with calls outnumbering puts more than four-to-one.

Open interest also skews towards the call-side, with nearly three call contracts open for every put.

The January 2022 25-strike, 26-strike, and 30-strike calls are the most populated of any SLV contracts, so it seems like traders are expecting SLV to move higher by the first expiration of 2022.

Hecla Mining (Ticker: HL)

HL is a precious metals mining name, and the largest primary silver producer in the U.S.

When we’re looking at commodities, miners are really a good way to get some bang for your buck;  many of them had to pay down their debts during the 2008 bear market, so they’re in great shape now.

I will admit, miners are risky. Many of them have difficult turning profitable, and some miss the mark altogether.

However, HL has a promising balance sheet, and higher silver prices could really work as a catalyst for the shares.

And with miners, you really do want to get in before they turn profitable, as that is when there is the most to be made.

From a technical standpoint, HCLA has formed a head-and-shoulders pattern on the chart over the last few months. The shares recently found support at their 50-day moving average, and if they’re threatening to break out of their 200-day moving average.

Chart courtesy StockCharts

HL does trade options, though they aren’t super high volume pits.

But on Friday, the shares saw 318% of its normal daily volume, and open interest currently sits at 116% of its normal levels.

For volume, calls outnumbered puts almost 18-to-1 on Friday, and as far as open interest, it’s still a healthy five-to-1 ratio, with 243,505 calls open compared to just 45,801 puts.

Specifically, options traders seem to favor the January 2022 5.5-strike calls and 10-strike calls, which each have over 20,000 contracts of open interest.

iShares 20+ Year Treasury Bond ETF (Ticker: TLT)

You might think that with the Federal government continuing to purchase bonds at the rate of $120 billion each month, I’d be bullish on TLT.

Actually, it’s quite the opposite … and it’s not only because the Fed has said they’ll be slowly tapering the rates at which they’re buying bonds in the months ahead.

Actually, bonds are not a great asset to hold during inflationary times, because their fixed interest rates means that as inflation increases, you’re actually seeing less returns … or even negative returns.

Which is why I actually would consider going short on TLT.

This week actually saw the worst bond auction in history, and TLT spiralled after.

Thus far, investors have remained in bonds, but as we see more and more inflation, and as the Fed tapering starts to hit, TLT could be headed for trouble.

Also, not that this plays into my decision to short TLT, but famed short seller Michael Burray (you know, the “Big Short” guy) actually bought $282 million in puts on TLT in June. Interesting fact.

TLT’s pits are already put-skewed, though not overwhelmingly so.

On Friday, TLT saw 123% of its normal trading volume, and puts outnumbered calls 1.5-to-1 (which is actually under the normal ratio of 1.9-to-1).

Open interest is also inflated at 112%, and 1.8 puts opened for each call.

If we’re looking at specific contracts, the January 2023 140-strike put actually has the highest open interest at 57,000, while the next two most popular are actually the November 155-strike calls and puts, with 50,000 and 47,000 contracts open.

If you like these recommendations, or just want to hear more about how inflation will impact your trading (and how you can front-run it to profit) you can watch a replay of Friday’s special event right here.

Watch all the way to the end and you can even still get in on the free trade we gave out …

And if you want in on Griff’s immaculate track record … you can trade with him as a Power Income Trader right here.

Your Only Option,

Mark Sebastian

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