Good way to invest on hunch that silver will go back over 40? (trust, stock)

[JohnHAdams]

I don't want to own silver. I just want to bet on my feeling that silver will resurface above 40 within six months.

I have a Scotttrade account. Too tired to see if they offer that option tonight.

[eskercurve]

iShares Silver Holdings... SLV on NYSE.

[BMWZ4RUlz]

i think there is a leveraged silver too, 2x. however, i don't know if that is a long term investing vehicle-some of those things don't work for long term investing.

i agree with you though

[chet everett]

NOT investing!

SPECULATING -- more like lotto or a casino!

[mathjak107]

yep speculating is the right word. betting the ranch on one asset and betting the timing and outcome is not investing in my opinion.

[JohnHAdams]

Investing and speculating is the same thing. If you can't handle risk thats fine. No need to disparage those who are bolder.

I'm a mere prole of modest means. I invest modest amounts in several different things.

[howard555]

Originally Posted by JohnHAdams

I don't want to own silver. I just want to bet on my feeling that silver will resurface above 40 within six months.

I have a Scotttrade account. Too tired to see if they offer that option tonight.

A simple call option on the SLV can be used.
The Jan. 2013 $35 call option gives you 20 months to be right. The cost today is $6.85, so your breakeven would be $35 + $6.85 = $41.85.

That is worst case, if the SLV was under $41.85 in Jan. 2013.

You would want a big move up in the SLV, as far in advance of Jan. 2013. Because there will be more "time" left, so the sooner your prediction happens, the greater the value of the option you own.

The most you can lose is the $685. The most you could make, would be as high as the SLV can go, by Jan. 2013.
If it got to $55, your option would be worth $2000 ($55 - $35 = $20 x 100)

[JohnHAdams]

Originally Posted by howard555

A simple call option on the SLV can be used.
The Jan. 2013 $35 call option gives you 20 months to be right. The cost today is $6.85, so your breakeven would be $35 + $6.85 = $41.85.

That is worst case, if the SLV was under $41.85 in Jan. 2013.

You would want a big move up in the SLV, as far in advance of Jan. 2013. Because there will be more "time" left, so the sooner your prediction happens, the greater the value of the option you own.

The most you can lose is the $685. The most you could make, would be as high as the SLV can go, by Jan. 2013.
If it got to $55, your option would be worth $2000 ($55 - $35 = $20 x 100)

Interesting.....thank you.


Would it costs less than $6.85 x 100 for a call option that expired on, say, Jan 2012?

I'm hoping for closer to $4.00 x 100.

[howard555]

Originally Posted by JohnHAdams

Interesting.....thank you.


Would it costs less than $6.85 x 100 for a call option that expired on, say, Jan 2012?

I'm hoping for closer to $4.00 x 100.

Yes, the January 2012 is less, but you lose 12 months of time.
SLV Options | iShares Silver Trust Stock - Yahoo! Finance

The "100" comes from the fact that one of these call options on the SLV (not the metal itself) represents 100 shares of the SLV. You would be buying 1 of these call options and they give you the right to buy 100 shares of the SLV, on or before Jan. 20th, 2012 at the price of $35.

I picked $35, because the SLV is just under $35.

From above, you see the Jan. 2012, $35 is $4.55-$4.65, so you could surely be able to buy one, in the middle of that, or $4.60.

That is $4.60, as in under a $5 bill from your wallet.
But it represents 100 shares, so it cost you 100 x $4.60 = $460.

Ex:
SLV goes to $43, well before Jan. 2012, then your $35 option would be worth about $8.00 or $9.00. For the sake of examples, suppose you are correct and $43 happens in the next 3 months, then you see the value of the $35 is now $4.60. Just count backwards $8.00, to the May $27 which is worth over $9.00, so that is about what a $35 option would be worth if SLV went to $43 is short order. (An $8.00 move up in the SLV)

From the options, you can choose a $40 option, for only $2.85 or $285.
But your breakeven goes up to $42.85.
With the $35 your breakeven is $39.60.
There are $35, $36, $37, etc.

You can lose 100% if your predicted "direction" or "price" are wrong.
The more violent the moves in the SLV, the more value, the January 2012 $35 option, would hold.

If it waits to go to $40 or more, until early Jan. 2012, well, your profit will be small because your breakeven is $39.60. If it should go to $40 in the next 2-3 months, then your January 2012 would have a much higher value, all based on how many months are left until the option you have bought, will expire, which should be the 3rd Friday in January.

The other choice you have on the SLV is to spend $3,439 for 100 shares.
Then your profit starts immediately, if the SLV goes up.
A $40 SLV price would give you a profit of $561.
BUT, you have to have over $3400 to do it that way.
And if the SLV fell to $20, well you are losing $1439.

The option is the low cost way, but you can lose 100%.
You can not lose 100% on shares, unless they go to zero.

And remember that the SLV is based on the price of silver, and is not the metal itself.

[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.