Post by jeffolie on Nov 22, 2011 11:26:50 GMT -6
Please criticize silver puts selling . I am looking for ideas, flaws, dangers in the below approach.
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How to beat money-market returns as a silver investor
November 21, 2011, 7:06 AM
With the low rates currently paid to investors in the money market and in this very low interest rate environment, we have to look for original avenues to find how to protect our money returns.
We think that silver is a very good investment, and it was proven to be one of the best for the last ten years. Since its low at $4.01 per ounce in November 2001 to the last high of $49.87 reached in April 2011, we were tested with wild corrections in 2008 and 2011, each time of around 50% from the previous high.
Besides physical silver, the best vehicle to use for silver investment is the SLV which is an ETF (exchange trading fund) for 1 ounce of silver. Friday 11/18/11’s close was $31.40. This year’s low was $27.41 (09/26/11) and the high was $48.35 (04/28/11).
In this financial world of debt crisis which saw the U.S. Federal Reserve come to help with two Quantitative Easing interventions (QE1 in 2009 and QE2 in 2010), we think that the next QE3 will happen when the stock market will again fall down dramatically. The shock of Europe’s waves are starting to hit U.S. shores. When QE3 will be implemented, the stock market should stabilize and silver should shoot up. (After QE2, silver went up from $18 to almost $50 in the space of eight months.)
This is what we propose to do for those investors who accept to allocate 5% of their portfolio to a potential silver purchase: We will use the strategy of selling put options on silver. For example, when we sell an SLV put option at a strike price of $25, we are committed to buying silver below $25. If silver stays above the strike price of $25, at option expiration we will keep only the option premium which was given to us when we sold the put. It is very important that we accept to allocate the total value of our commitment to buy silver at $25 in this strategy.
The above strategy in action:
On Friday 11/18/11, SLV closed at $31.40.
All examples don’t include commissions.
Two-Year Put Options
SLV $25 Put January 2014 (Expiration 01/18/14) closed Friday 11/18/11 at $4.50 (Bid). If at expiration, silver is below $25, we get delivered silver at $25 (20% lower than Friday 11/18/11’s close), and we have to pay $2,500 for the one Put we sold (1 option = 100 x $25). In the case silver is above $25, we keep the premium of $450 per option ($4.50 x 100). What was our return in this case? $450/$2,500 = 18% over two years (9% per year when the money market is giving us very low interest rates).
SLV $20 Put January 2014 (Expiration 01/18/14) closed Friday 11/18/11 at $2.60 (Bid). If at expiration, silver is below $20, we get delivered silver at $20 (30% lower than Friday 11/18/11’s close), and we have to pay $2,000 for the one Put we sold (1 option = 100 x $20). In the case silver is above $20, we keep the premium of $260 per option ($2.60 x 100). What was our return in this case? $260/$2,000 = 13% over two years (6.5% per year when the money market is giving us very low interest rates).
One-Year Put Options
SLV $25 Put January 2013 (Expiration 01/19/13) closed Friday 11/18/11 at $3.15 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 12.6% for 1 year.
SLV $20 Put January 2013 (Expiration 01/19/13) closed Friday 11/18/11 at $1.58 (Bid). Similarly to the previous examples, if at expiration silver closes above $20, the return will be 7.9% for 1 year.
If a more aggressive strategy is followed:
SLV $31 Put January 2013 (Expiration 01/19/13) closed Friday 11/18/11 at $5.80 (Bid). Similarly to the previous examples, if at expiration silver closes above $31, the return will be 18.7% for 1 year.
Short-Term Put Options
SLV $25 Put December 2011 (Expiration 12/17/11) closed Friday 11/18/11 at $0.21 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 0.8% for one month (an annualized return of 10%).
SLV $25 Put January 2012 (Expiration 01/21/12) closed Friday 11/18/11 at $0.54 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 2.16% for two months (an annualized return of 13%).
SLV $25 Put February 2012 (Expiration 02/17/11) closed Friday 11/18/11 at $0.84 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 3.3% for one month (an annualized return of 13.4%).
Conclusions:
In all these examples, we will not own silver at all if the market never goes below our put’s strike price at expiration. However, the amount allocated for the silver in the case of expiration below the strike price should still bring us a better return than if it were sitting in the money market.
The January 31, 1980 silver price (adjusted for inflation by the CPI) was $139.98. In the present economic environment, allocating 5% of your portfolio to silver (Friday’s SLV close was $31.40) and 5% to the above strategy should at maximum keep you invested at 10% in silver which has been one of the best investments during the last 10 years. Only the very unlikely but catastrophic scenario of a depression hitting us all could derail this investment’s profitability.
Everyone should remember that silver was money until 1961!…
Esther de S.G. Elkaïm
blogs.marketwatch.com/great-columnist/2011/11/21/how-to-beat-money-market-returns-as-a-silver-investor/
=================================
How to beat money-market returns as a silver investor
November 21, 2011, 7:06 AM
With the low rates currently paid to investors in the money market and in this very low interest rate environment, we have to look for original avenues to find how to protect our money returns.
We think that silver is a very good investment, and it was proven to be one of the best for the last ten years. Since its low at $4.01 per ounce in November 2001 to the last high of $49.87 reached in April 2011, we were tested with wild corrections in 2008 and 2011, each time of around 50% from the previous high.
Besides physical silver, the best vehicle to use for silver investment is the SLV which is an ETF (exchange trading fund) for 1 ounce of silver. Friday 11/18/11’s close was $31.40. This year’s low was $27.41 (09/26/11) and the high was $48.35 (04/28/11).
In this financial world of debt crisis which saw the U.S. Federal Reserve come to help with two Quantitative Easing interventions (QE1 in 2009 and QE2 in 2010), we think that the next QE3 will happen when the stock market will again fall down dramatically. The shock of Europe’s waves are starting to hit U.S. shores. When QE3 will be implemented, the stock market should stabilize and silver should shoot up. (After QE2, silver went up from $18 to almost $50 in the space of eight months.)
This is what we propose to do for those investors who accept to allocate 5% of their portfolio to a potential silver purchase: We will use the strategy of selling put options on silver. For example, when we sell an SLV put option at a strike price of $25, we are committed to buying silver below $25. If silver stays above the strike price of $25, at option expiration we will keep only the option premium which was given to us when we sold the put. It is very important that we accept to allocate the total value of our commitment to buy silver at $25 in this strategy.
The above strategy in action:
On Friday 11/18/11, SLV closed at $31.40.
All examples don’t include commissions.
Two-Year Put Options
SLV $25 Put January 2014 (Expiration 01/18/14) closed Friday 11/18/11 at $4.50 (Bid). If at expiration, silver is below $25, we get delivered silver at $25 (20% lower than Friday 11/18/11’s close), and we have to pay $2,500 for the one Put we sold (1 option = 100 x $25). In the case silver is above $25, we keep the premium of $450 per option ($4.50 x 100). What was our return in this case? $450/$2,500 = 18% over two years (9% per year when the money market is giving us very low interest rates).
SLV $20 Put January 2014 (Expiration 01/18/14) closed Friday 11/18/11 at $2.60 (Bid). If at expiration, silver is below $20, we get delivered silver at $20 (30% lower than Friday 11/18/11’s close), and we have to pay $2,000 for the one Put we sold (1 option = 100 x $20). In the case silver is above $20, we keep the premium of $260 per option ($2.60 x 100). What was our return in this case? $260/$2,000 = 13% over two years (6.5% per year when the money market is giving us very low interest rates).
One-Year Put Options
SLV $25 Put January 2013 (Expiration 01/19/13) closed Friday 11/18/11 at $3.15 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 12.6% for 1 year.
SLV $20 Put January 2013 (Expiration 01/19/13) closed Friday 11/18/11 at $1.58 (Bid). Similarly to the previous examples, if at expiration silver closes above $20, the return will be 7.9% for 1 year.
If a more aggressive strategy is followed:
SLV $31 Put January 2013 (Expiration 01/19/13) closed Friday 11/18/11 at $5.80 (Bid). Similarly to the previous examples, if at expiration silver closes above $31, the return will be 18.7% for 1 year.
Short-Term Put Options
SLV $25 Put December 2011 (Expiration 12/17/11) closed Friday 11/18/11 at $0.21 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 0.8% for one month (an annualized return of 10%).
SLV $25 Put January 2012 (Expiration 01/21/12) closed Friday 11/18/11 at $0.54 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 2.16% for two months (an annualized return of 13%).
SLV $25 Put February 2012 (Expiration 02/17/11) closed Friday 11/18/11 at $0.84 (Bid). Similarly to the previous examples, if at expiration silver closes above $25, the return will be 3.3% for one month (an annualized return of 13.4%).
Conclusions:
In all these examples, we will not own silver at all if the market never goes below our put’s strike price at expiration. However, the amount allocated for the silver in the case of expiration below the strike price should still bring us a better return than if it were sitting in the money market.
The January 31, 1980 silver price (adjusted for inflation by the CPI) was $139.98. In the present economic environment, allocating 5% of your portfolio to silver (Friday’s SLV close was $31.40) and 5% to the above strategy should at maximum keep you invested at 10% in silver which has been one of the best investments during the last 10 years. Only the very unlikely but catastrophic scenario of a depression hitting us all could derail this investment’s profitability.
Everyone should remember that silver was money until 1961!…
Esther de S.G. Elkaïm
blogs.marketwatch.com/great-columnist/2011/11/21/how-to-beat-money-market-returns-as-a-silver-investor/