Clive Maund
gold, silver, & oil shares


COMPLETE TOOLBOX FOR CAPITALIZING ON A GOLD & SILVER PLUNGE...

originally published September 7th, 2011

This article is intended to assist you in capitalizing on the expected severe correction in gold and silver and gold and silver related investments in coming weeks, which should correlate with strong gains in the dollar, and/or to assist in offsetting serious losses to open long positions in the sector that might otherwise be incurred. We start with a selection of appropriate bear ETFs and then proceed to examine appropriate option plays. Remember that experienced traders can also employ the tactics of old fashioned short selling, or writing Calls. Covered Calls are an excellent play - you write (sell) the nearby strike and buy one higher up to protect from the danger of a runaway rise in the stock for whatever reason, such as a takeover. This tactic enables you to pocket the premium from the nearby Call, which is relatively expensive, and the cost of the cheaper Call at the higher price is your insurance premium which limits your upside exposure. Don't worry about having to chase the market after the open this morning - I see that gold and silver are down heavily as this is being posted - this plunge is still in its earliest stages, so these prices should go way way higher.


Horizons BetaPro Comex Gold Bullion Plus Bear ETF HBD.TSX, C$2.84


ProShares Ultrashort Gold ETF GLL $14.77


Horizons BetaPro Comex Silver Bear Plus ETF HZD.TSX, C$4.18


ProShares Ultrashort Silver ETF ZSL, $11.30


Following is a selection of Traded Options that may be employed either for speculative gain on a drop in gold and silver prices, or to offset lossesw in long positions in the sector. Options in SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) are preferred to stock options because they benefit from substantially greater liquidity, meaning spreads are reduced and they are easier to sell for a fair price.


SPDR Gold Trust GLD $182.90

Puts may be selected between the strikes of $180 - $170, depending on the level of risk that is acceptable and the leverage required. Puts approaching $160 are considered to be disproportionately expensive in relation to the risk involved. Suggested contracts are the nearby October $180 Put at $6.59 or the November 179 at $7.25 which will quickly move point for point, and the October 171 Put at $2.77 and the November 170 at $4.03


iShares Silver Trust SLV $41.05

Contracts are proportionately priced and optimum strikes for a combination of leverage and relative safety in the sense that their is a good chance of the underlying price (of SLV) moving well below the strike price are the $36 to $38 strikes, examples being the October 34 at $0.45 and October 38 at $1.33, and for more time the well priced (in relation to neighbouring contracts) November 35 at $1.08 and November 39 at $2.29 - note however that these are last trade prices and they may have changed.


Proshares Ultrashort Silver ZSL $11.30

More sporting subscribers may like to try their hand with ZSL Calls - remember that as this is a bear ETF on silver it's the Calls we want not the Puts. ZSL has taken a hammering on silver gradual recovery from its May panic lows, having dropped from over $24 to the current $11.30. You may recall that did a very nice trade buying Calls in this at the end of April just before silver tanked and doubled or tripled our money in less than a week. Now it looks like we can try the same stunt again, as ZSL is likely to spike quickly above $18 if silver tanks again, as expected. Suggested contracts are the September 12 Call at $0.38 and the November 11 Call at $1.60 and the November 13 Call at $0.95 - note that some of these prices look like last trade prices and they may have changed, but you should be able to buy them at good prices, given that silver has barely started to drop yet.

Puts in big gold stocks look like an attractive play here either for speculative gain, or to protect holdings in the sector. Suggested plays are the Agnico Eagle (AEM $70.51) Oct 67.50 at 2.58, the Nov 67.50 at $3.31, Barrick (ABX $53.59) October 49 at $1.01 or Jan 50 at $2.87, the Pan American Silver (PAAS $33.49) October 30 at 1.15 or the October 28 at $0.50. PAAS is just below a zone of strong resistance and well placed to get clobbered if silver heads south soon. Note that PAAS options are probably more thinly traded. Goldcorp has a stronger chart and is not liked so much for Puts.


All prices are for the close of trading on Tuesday 6th September 11. Note that options prices are "last trade" and may be substantially different after market open from the latest prices available from the CBOE website.

Posted at 9.35 am EDT on 7th September 11.