exbingoaddict wrote:Market Harmony, a very interesting idea.
I've been wondering how many people hold physical silver and short the SLV (likewise hold physical Gold, short GLD) as their hedge. They look pretty smart right now if they put the positions at the right time.
Now, I'd like to take a stab at your idea. You know how I have to repeat something back to learn it.
Step 1: You're considering shorting other segments of the market based on weakness.
Step 2: You're looking at putting a below market bid on leveraged silver and hope it gets filled. I.e. ABC has a price of $10 and your putting in a limit order to buy at $9.50
Step 3: In the event silver rises, you'll buy a put with a strike of $12 to protect your paper gains? Or may consider selling calls with a strike of $11.50 for income/downside protection. Correct me if I'm wrong at all with your idea.
They are not so much "steps", but more like ideas... so, step #1 is more like idea #1... I haven't found any true lagging sectors to silver, so this option is unattractive
As far as the equity and option scheme, the trade would happen simultaneously (achievable through widgets offered by online brokers)... place an order less than the market, when filled, buy a put... ride out to see if you are safely protected on the downside, or if you were lucky enough to catch the bottom, and then close the option and let the underlying ride.
As far as your hedging of physical with paper... it is a valid point to offset unrealized losses in the physical position with paper gains made by shorting an equity. This is beneficial only on a smaller scale, and only if you close out your physical position gains or losses each year to counterbalance the gain or loss in the paper side. But, for added income and ease of mind, this strategy is certainly achievable, though not always on a 1:1 basis with actual spot pricing.
