Good way to invest on hunch that silver will go back over 40? (fund, 401k)

[howard555]

Originally Posted by JohnHAdams

Great post Howard....thank you.


There is a lot to be said for physical ownership. But one has to watch the market like a hawk since silver is so volatile. I can imagine the frenzied crowds if anything big happened. I don't do the frenzied crowd thing very well.

Here is one for you:
The ZSL
Fund Summary The investment seeks to provide daily investment results (before fees and expenses) that correspond to twice (200%) the inverse (opposite) of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

look at the last 3 months:
ZSL Basic Chart | ProShares UltraShort Silver Stock - Yahoo! Finance

Look how fast is went down as silver prices went UP. This ETF with the symbol ZSL will move 2 times the price of silver but in the opposite direction.
And you can see how it went from $13 to $25 since April 29th as silver went DOWN.

So, you think silver will be going up.
So, if you were interested in one option contract on this ETF, you would want a put option. Because if silver goes up, this ZSL will go down.
The fact that it moves 2 times the price of silver, is reflected in the option prices. The ZSL is $19.70. A Jan. 2012 $20 put option would cost you about $6.10 ($610) so breakeven is down at $13.90.
BUT......remember it was only $13 two weeks ago.
This thing would need to be watched closely. If silver went back to $40 in a hurry, this thing would go up in value fast (the option) and you would want to consider selling.

I heard opinions that silver will be heading to $60.
I'm thinking about using options on the SLV.

Here is one possible way:
Create a call spread on the SLV.
Buy the Jan. 2013 $35 call option for about $7.05.
Then create a spread by selling the June $38 for about $1.00.
So, the one I own gives me 20 months to be right.
If I am right, and the SLV is below $38 on June 17th, then I have recovered about 14% of my cost. ($1.00 / $7.05)
Since I own the $35 and I sell the $38, the one I own will always be worth $3.00 more, than the one I sold.
The risk would be if the SLV went too far over $38 by June 17th.
Ex: SLV = $45.00. The June $38 would be worth about $7.00 (45-38). My Jan. 2013 $35 would be worth about $11.00.

Perfect scenario would be that the SLV "is" just under $38 on June 17th. Then I could sell a July $41 or $42 and recover more of my original cost.

Nimble foot work, and selling a close month, and a higher strike price, than I own, would, as some point, make the cost basis of my Jan. 2013 $35, be zero.

I'd have 20 months to try to make $7.05 selling the short leg of the spread.
So, 7.05 / 20 = only .35
I only need to make .35 a month, average, to recover my cost of the Jan. 2013 $35. The example above for June, shows how to get $1.00 back in 4 weeks. There are plenty of different strike prices higher than the one I'd own, to be able to get .35, or more, every month.

[mysticaltyger]

Originally Posted by chet everett

NOT investing!

SPECULATING -- more like lotto or a casino!

I'll also say this is speculating. Investing & speculating are NOT the same thing, JohnHAdams!!!

[JohnHAdams]

Originally Posted by mysticaltyger

I'll also say this is speculating. Investing & speculating are NOT the same thing, JohnHAdams!!!

Ummm OK. Its not like I used to be a stockbroker. Or anything like that.



My 'specialty' was selling to bank VPs.

[howard555]

Originally Posted by mysticaltyger

I'll also say this is speculating. Investing & speculating are NOT the same thing, JohnHAdams!!!

Options are becoming very popular ways to manage and reduce risk, by individual investors.

If Mr. Adams feels that silver will be going above $40, by a certain date in the future, he has more than one way to "invest" in his "conviction" on silver.

[jtur88]

Here are some interesting facts about Silver and Gold, that I mostly gleaned from this site: Silver Supply Illustrated - Seeking Alpha

Virtually all the gold ever mined in the world still exists in usable form, and about 97% of it has been mined in the past 120 years.

Of all the silver ever mined, more than 90% has been lost and will never be recovered in usable form, because it was used industrially in chemically combined form, and has been discarded.

Which means, as far as I can tell, that they keep adding new gold to the global stockpile, but silver keeps getting used up.

[Ariadne22]

Options limit risk and provide leverage, but they hurt my brain. However, I won't give up. Prognosticators on FastMoney say gold is a better bet than silver. And the way to play is the GLD. I haven't got up the courage to do that, yet. Guy Adami on FastMoney had been a gold trader and says when it unravels, it goes fast. Guess stop losses are the way to go, but I hear you can blow through those, too.

[50topstocks]

I would not go on a hunch or feeling. You need to know for sure or do not invest, or trade. Have you ever read Rule #1. Do not lose any money, is the rule. The book is mostly for value investors. It does have good stock picking rules. Pick companies, by their performance. Profit margins, sales, cash flows, debt/income, managers experience, growth rates, ect. Technically, you would still want to pick the entry point, and the exit price. I prefer to get in the market at the point where I am "in the money" from the open to the close without any retraction. In other words, I never have a losing position. I buy at the very bottom of my run,.. or cycle, if you prefer. Some try to call the breakout, or the leg up or down. Some say it is guessing the bottom or top. I do not use such non sense. It is important to understand the market, so you know what to do, and you are not guessing. Sure there is always a risk that the market will move against you. You reduce that risk with knowledge, and it helps to have an alert system that confirms your analysis. Look at some markets overlaid on a chart, and see how they move. You will find the right time to buy and sell.

[John23]

On the topic of silver, I don't think most people realize the value of pre 1964 silver coins in this country. They are far, far above face value. These are not esoteric or rare coins. A 1964 Roosevelt dime. 1964 Kennedy half dollar (90% silver).

1932-64 Washington quarters. They've gone up in value 16x for their silver content.

On ebay, people are buying 1964 roosevelt dimes for $2. I think the general public still the has the minset from the 80's and 90's, when silver was $5. Silver has gotten valuable!!

I think everybody (investor or not) should hold some Morgan or Peace dollars in their hand. They were made in 1900, 1920. Those things were heavy. Much heavier than an Eisenhower dollar (40% silver). Heavier than the plastic money we have now.

-You also wonder if silver is worthless now, why did we use to have silver certificates? You could actually trade in your Federal Reserve note for silver. Wouldn't people take the Federal Reserve up on that trade now?

I wonder how far the money supply has gone up since 1965 or 71, since Nixon took the country off the gold standard. It must be enormous vs US GDP or growth.

[mysticaltyger]

Originally Posted by JohnHAdams

Ummm OK. Its not like I used to be a stockbroker. Or anything like that.



My 'specialty' was selling to bank VPs.

I don't really care whether you were a stockbroker or not or who you sold to. Stockbrokers are not necessarily better investors than anyone else.

[nutnfancy]

If the economy improves gold and silver will suffer. Its a hedge bet only. IMO