IDEAS: longer term PM and PM related investments

[Market Harmony]

I thought it might be a good idea to involve the entire membership in some idea sharing in regards to capitalizing on the volatility and longer term perspective of precious metals. This can be anything from a flipping opportunity, to stocks, to buy and hold, to funds, to private investments, to anything related to precious metals. Think inside and outside the box. There have got to be some great ideas from the good folks here at realcent. Some of you might not want to share for fear of TMI being available. I understand that. But at least give us something that might spark the same idea that you had without giving away the details.

Here's what I am think about today... silver price has gone down recently, and I look at this as an opportunity to do 2 things: #1, If silver is a leading indicator of anything, then I want to short the follower. #2 I want to place a buy order for some leveraged stocks and/or ETF's of silver at much lower pricing than today. Hopefully, the limit orders get filled, and I will then place another order on the options to sell those shares (buy a put) in the future at a higher price. Alternatively, though not as attractive, I could also sell covered calls on those shares. I view this as cheap and risk free way to own silver. If silver takes off, and I want to ride it out, all I have to do is close the option trades and let the underlying equity runs its course.

Sorry if I talked over anyone's head... these are a little more advanced strategies, but worth the time to educate yourself to learn them. If you understand what I'm talking about, then feel free to correct me or cheer me on.

What are your ideas?

[Rodebaugh]

Mike, quick crazy dips in spot or jumps for that matter tend to shake things up a bit on eBay. As a note to folks with limited funds and an eBay account.....keep your eye on auctions ending in the next day or so and new BIN listings. Bargains are sure to be had as an influx of nervous holders look to turn their coin.

[Lemon Thrower]

MH - google "stink bids." (stock market term)

[silverflake]

Market Harmony - I like your thinking. I have been milking IAU and SLV with covered calls for a year now. I actually enjoy selling cash secured puts, usually out of the money with the thought that they expire and I get income from them. Perhaps you could sell some puts on SLV (or {gulp} AGQ) for income or hope it gets put to you (how low can it REALLY go...don't answer that). Any other angles out there?

[inflationhawk]

It works til it doesn't....tail risk can bite.

[Jonflyfish]

I thought it might be a good idea to involve the entire membership in some idea sharing in regards to capitalizing on the volatility and longer term perspective of precious metals. This can be anything from a flipping opportunity, to stocks, to buy and hold, to funds, to private investments, to anything related to precious metals. Think inside and outside the box. There have got to be some great ideas from the good folks here at realcent. Some of you might not want to share for fear of TMI being available. I understand that. But at least give us something that might spark the same idea that you had without giving away the details.

Here's what I am think about today... silver price has gone down recently, and I look at this as an opportunity to do 2 things: #1, If silver is a leading indicator of anything, then I want to short the follower. #2 I want to place a buy order for some leveraged stocks and/or ETF's of silver at much lower pricing than today. Hopefully, the limit orders get filled, and I will then place another order on the options to sell those shares (buy a put) in the future at a higher price. Alternatively, though not as attractive, I could also sell covered calls on those shares. I view this as cheap and risk free way to own silver. If silver takes off, and I want to ride it out, all I have to do is close the option trades and let the underlying equity runs its course.

Sorry if I talked over anyone's head... these are a little more advanced strategies, but worth the time to educate yourself to learn them. If you understand what I'm talking about, then feel free to correct me or cheer me on.

What are your ideas?

Have you considered selling out of the money naked puts with high implied volatilities? Could be a cheap way to fill a synthetic limit order and offset the cost by the premium. If not assigned then the premiums are unencumbered and free for the efforts.

Cheers!

[Jonflyfish]

Sorry didn't realize snowflake comments.
Inflationhawk- What tail risk exists in selling puts if you are otherwise indifferent to be buying the underlying regardless of how low it goes?

Cheers!

[Jonflyfish]

One of my previous clients is rather well known for hedging their fuel prices. Selling puts when naturally short a physical commodity is a terrific way to generate "other comprehensive income" outside of FASB Hedge Effectiveness to the tune of $100's of millions

Cheers

[inflationhawk]

Sorry didn't realize snowflake comments.
Inflationhawk- What tail risk exists in selling puts if you are otherwise indifferent to be buying the underlying regardless of how low it goes?

Cheers!

You answered the question yourself by saying "if you are otherwise indifferent to be buying the underlying regardless of how low it goes."

[Jonflyfish]

Sorry didn't realize snowflake comments.
Inflationhawk- What tail risk exists in selling puts if you are otherwise indifferent to be buying the underlying regardless of how low it goes?

Cheers!

You answered the question yourself by saying "if you are otherwise indifferent to be buying the underlying regardless of how low it goes."

Not sure that is a risk of the strategy. MH was saying that he is placing limit orders to buy. If they get filled great, if not just the same. Selling puts would reduce the cost if assigned and keep the premium otherwise. Either way the objective is improved upon over the limit order. There isn't any tail risk in using the option as a vehicle to make the purchase. Once the asset is owned there is quotational risk but that has nothing to do with the transaction.

You said that "It works til it doesn't....tail risk can bite" but I'm not seeing how it relates to the purchase strategy. That sounds more like "Buy silver on dips...it works til it doesn't" but the mechanics of purchasing doesn't have that risk. Owning the underlying asset does. For that you can lay off the quotational risk with a hedge.

Cheers!

[barrytrot]

Sorry didn't realize snowflake comments.
Inflationhawk- What tail risk exists in selling puts if you are otherwise indifferent to be buying the underlying regardless of how low it goes?

Cheers!

You answered the question yourself by saying "if you are otherwise indifferent to be buying the underlying regardless of how low it goes."

Not sure that is a risk of the strategy. MH was saying that he is placing limit orders to buy. If they get filled great, if not just the same. Selling puts would reduce the cost if assigned and keep the premium otherwise. Either way the objective is improved upon over the limit order. There isn't any tail risk in using the option as a vehicle to make the purchase. Once the asset is owned there is quotational risk but that has nothing to do with the transaction.

You said that "It works til it doesn't....tail risk can bite" but I'm not seeing how it relates to the purchase strategy. That sounds more like "Buy silver on dips...it works til it doesn't" but the mechanics of purchasing doesn't have that risk. Owning the underlying asset does. For that you can lay off the quotational risk with a hedge.

Cheers!

The problem with selling puts instead of "buying stock" though is that if the stock goes low enough for your order to be filled and then goes up substantially prior to the put's expiration you don't make the extra income from "buying the stock".

Other than that short puts instead of buying is one of my favorite things

And of course, in the current market environment the odds of it going up and staying up seem low So short puts would win in that scenario also

[Jonflyfish]

Thank you for the nice dialogue. Any such strategy needs to accomodate for Asian, Bermudan, American, Strip, European etc exercise provisions which can all be offset and used the way MH was proposing not to mention lease, warrants, swaps, swaptions etc. Obviously duration from prompt to LEAPS is also an important factor.

Cheers!

[Chief]

I don't do paper silver. I will always have/want physical silver. You can't hold it, you don't own it right? I know, there is money to be made trading paper silver, but that's not for me. An interesting thing that I've seen mentioned many times on this site is, will the price of physical silver disconnect from the price of paper? And what will happen when it does? I do think it will have not a huge, but substantial price gap if silver does go to 25 or lower. Again, my bias towards physical makes me think that 90% US coins and .999 bullion will be in demand. Thus, people will pay more than just melt value for it. In my opinion, the average person interested in silver would look to silver US coins and bullion, instead of paper. If demand is high, people will pay just a little bit more for what they want.

I want to buy a significant amount of Ag if it dips to 25 or below. More ounces per Dollar. How much control do TPTB have over PM? Will the free market eventually overtake/overpower TPTB's power/control over the market? I think so, but when? I look at owning PMs as wealth preservation, but if there are outside forces working within the market, the game is rigged. Being young, my future outlook is still the next 30-40 years. I want my money that I earned to have the same purchasing power that it did when I earned it. Doom and gloom, shtf, or sunshine and lollipops, I WANT MY MONEY TO NOT BE DISAPPEARING due to my inaction or inflation/things out of my control.

Hope my non-technical ramblings will add to the discussion in this thread. Thanks guys.

[barrytrot]

I don't do paper silver. I will always have/want physical silver. You can't hold it, you don't own it right?

I'm surprised people say this. Government seizure of physical assets and non-physical assets happens all the time. So physical doesn't help with that. And if you want to buy something in pre-Armageddon world that is worth more than a few thousand you need non-physical assets to do so. So, in the *current paradigm* non-physical is actually more useful and MORE "owned" than physical.

That said, I do prefer "real" silver (physical) but paper is easier to handle, trade, and also has the ability to use derivatives as a source of income as opposed to physical silver which looks cool but gathers nothing but dust.

[Lemon Thrower]

1. the reason to avoid paper silver is the daisy chain issue as with MF Global. You have counterparty risk you don't realize you have with paper, and you avoid that with physical. it is not to avoid government confiscation but counterparty risk.

2. johnyy, selling puts is an idea but you risk not getting filled. i took a flyer on one stock and sold puts but the price ran away and while i had identfied a good speculation i didn't profit because i was cheap. so there is still risk, just a different kind which is less severe than some other kinds. more of an opportunity cost or reinvestment rate risk than a default risk, but risk nonetheless.

[Lemon Thrower]

btw, if you guys are patient and are convinced that pms are going up huge, theoretically the best way to play it is to buy common stock of the plays that have the most ounces and represent the best value. an example is NAK. Huge project with huge environmental challenges and infrastructure. but if you have $4000 gold, that thing is going to get built. one hidden risk is that with these gold projects, a lot of the cost projections implicity factor in the cost of copper, since its mined with the gold and nets against the mining cost. so if copper crashes, a project like NAK may face some additional non-obvious headwinds.

[Jonflyfish]

1. the reason to avoid paper silver is the daisy chain issue as with MF Global. You have counterparty risk you don't realize you have with paper, and you avoid that with physical. it is not to avoid government confiscation but counterparty risk.

2. johnyy, selling puts is an idea but you risk not getting filled. i took a flyer on one stock and sold puts but the price ran away and while i had identfied a good speculation i didn't profit because i was cheap. so there is still risk, just a different kind which is less severe than some other kinds. more of an opportunity cost or reinvestment rate risk than a default risk, but risk nonetheless.

Agree LT about counterparty risk, but it exists in physical as well. There is always counterparty risk. Thus it is important to vet who you deal with but of course whether it is criminal activity ala J Corzine (innocent until proven guilty), exchanges (ultimate counterparty for exchange traded contracts) or the crafty folks who fill physical bars with tungsten, or the great folks here that I have sent money to in the past, "transacting at my own risk", with the promise to deliver (which they always have).

About point #2, you are correct, but in the example from MH that is just fine because he was looking to place a limit that either gets filled or not, just the same. If you must have assignment there are other strategies to achieve such. I was only addressing the scenario originally outlined.

Great comments.
Cheers!

[Chief]

... Government seizure of physical assets and non-physical assets happens all the time. So physical doesn't help with that. And if you want to buy something in pre-Armageddon world that is worth more than a few thousand you need non-physical assets to do so. So, in the *current paradigm* non-physical is actually more useful and MORE "owned" than physical.

Could you please explain this to me? I don't quite understand what you mean. Also, I am not afraid of gov't seizure unless it is FDR 1933 type thing, and if that happens I think more people will object/reject (to) the idea, but to what effectiveness. Who knows what state the country/world would we be in if that were to happen? I'd love to read articles from 1932-33 about FDR's executive order and compliance.

That said, I do prefer "real" silver (physical) but paper is easier to handle, trade, and also has the ability to use derivatives as a source of income as opposed to physical silver which looks cool but gathers nothing but dust.

With buying/selling/trading paper, don't you have to pay taxes on capital gains each year? While on the other hand with physical PM, you can buy all you want, but only pay taxes if/when you sell them for profit? I'd rather buy on dips and let it sit for 30 years. I am not the most knowledgeable with tax implications, but I did stay at a Holiday Inn Express last night.

[barrytrot]

That said, I do prefer "real" silver (physical) but paper is easier to handle, trade, and also has the ability to use derivatives as a source of income as opposed to physical silver which looks cool but gathers nothing but dust.

With buying/selling/trading paper, don't you have to pay taxes on capital gains each year? While on the other hand with physical PM, you can buy all you want, but only pay taxes if/when you sell them for profit? I'd rather buy on dips and let it sit for 30 years. I am not the most knowledgeable with tax implications, but I did stay at a Holiday Inn Express last night.

You pay taxes on all SALES. Be that physical or electronic. Buying and holding is always tax free until you sell. So tax-wise they are the same.

Also another problem with physical is someone can break into your house/bank/wherever you have them and steal them.

With electronic, theft is possible, of course, but your ability to get the money back is quite a bit better since there is a "paper trail". As opposed to "anonymous physical" which has very little or generally no paper trail.


NOTE: I removed the other part of the quote as I don't see how I could add to that. My point was -> Physical requires changing to electronic in order to do anything beyond the $10,000 range with it. While electronic can be converted and even be used to take a loan against any time with literally micro-senconds to do the transaction.

[Market Harmony]

MH - google "stink bids." (stock market term)

hehe... I'm quite aware of stink bids. Somehow, some way, for whatever reason, and however dumb the luck was, I had a stink bid fill on AAPL on the day of the flash crash... filled at $220 and sold the same day at $255. I had to sell because the size of the order was so big that I would have been too leveraged on the next day. That was one crazy day

[Market Harmony]

Mike, quick crazy dips in spot or jumps for that matter tend to shake things up a bit on eBay. As a note to folks with limited funds and an eBay account.....keep your eye on auctions ending in the next day or so and new BIN listings. Bargains are sure to be had as an influx of nervous holders look to turn their coin.

Great idea for physical. As stated by some other folks, you have some counterparty risk. You put up the funds from your account, and the other side can cancel their transaction. Same thing goes with selling on feebay... the other side can cancel the order. I hate feebay

[Market Harmony]

Market Harmony - I like your thinking. I have been milking IAU and SLV with covered calls for a year now. I actually enjoy selling cash secured puts, usually out of the money with the thought that they expire and I get income from them. Perhaps you could sell some puts on SLV (or {gulp} AGQ) for income or hope it gets put to you (how low can it REALLY go...don't answer that). Any other angles out there?

Selling naked puts is OK for some risk, but I also like to hold the underlying if I'm playing the options... true hedging that way, while collecting some premium. Otherwise, it's just speculation.

[Market Harmony]

Thank you for the nice dialogue. Any such strategy needs to accomodate for Asian, Bermudan, American, Strip, European etc exercise provisions which can all be offset and used the way MH was proposing not to mention lease, warrants, swaps, swaptions etc. Obviously duration from prompt to LEAPS is also an important factor.

Cheers!

Leaps are interesting... considering a long term perspective, leaps give a gambler a bet that is spread over a fair amount of time. Alternatively, I've liked an equity long term but realized that I could earn off of the volatility (sound familiar?)... So, I would play the equity, and put half the profits into leaps. That way, I'm always positive, hold the equity, and also have free money parked in a long term bet for much higher gains

[Market Harmony]

1. the reason to avoid paper silver is the daisy chain issue as with MF Global. You have counterparty risk you don't realize you have with paper, and you avoid that with physical. it is not to avoid government confiscation but counterparty risk.

2. johnyy, selling puts is an idea but you risk not getting filled. i took a flyer on one stock and sold puts but the price ran away and while i had identfied a good speculation i didn't profit because i was cheap. so there is still risk, just a different kind which is less severe than some other kinds. more of an opportunity cost or reinvestment rate risk than a default risk, but risk nonetheless.

Yes, there is a bigger SHTF risk with paper. But the ease, relative stability, and variety of investment vehicles, makes trading paper equities quite lucrative... on paper. Counterparty risk can be subdued by diversification of brokers and equities. I do not currently see a significant risk to the majority of either paper or physical trading. Both have their benefits and faults.

Prudent analysis of risk involves more that just the thing that you are trading.

[exbingoaddict]

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.