The Trend is Your Friend Until it Bends

This is one of the oldest sayings in investing.  But is it really something people can profit from?

In a word, yes.  According to an article in

, researchers have confirmed what many on trader have long suspected.  The trend is your friend. 

-- assuming that trading costs didn't kill you, of course.

One way to play this right now is a shiny

.  No, not that one.  Everyone has heard about how gold has run up and how it's trading near record highs.

But the run up in its less glamorous cousin, silver, has been even more impressive.  A year ago, the ETF for silver, SLV, was trading at around $18 a share.  Now?  It's trading above $40.  That's one hell of a pop, and if you want to use a trend profitably, this is a good one to use.

We've done that recently multiple times.  Our first foray into trading options for SLV was a couple of weeks ago, when we bought the May $38 call for $2.09.  Two days later, we sold that call for $2.37, a gain of 13.7 percent.  We took the proceeds from that trade and bought the May $40 call for $1.58.  Then we set up a good until cancelled order for $1.66.  We didn't think that we'd have that order executed the same day for an interday gain of five percent!

We continued to play the trend, buying the May $39 call when there was a dip in silver for $1.89.  Today, we sold that call for $2.49.  And we put the proceeds for that into the May $41 call, which we paid $1.70 for.  We've got a limit order in on that for $2.24, and we fully expect that the trend will continue and we'll get it.

You'll notice we're doing this with options.  This is because we don't want to tie up as much capital as we'd need to in order to buy the ETF itself.  For every 100 shares, we'd need to tie up $4,100.  With options, all we need is $170 to do the same.

That's the benefit of leverage.  Of course, the downside is if our trade goes bad, it will kill us real quick  But if the trend truly is our friend, then we'll do okay.

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