The resurrected thread from 2011 about silver rounds made me think about a strategy a few of our clients have mentioned they use, which is the use of instruments to hedge their personal metal holdings against a fall in value. Some have been able to increase their ounces by cashing out profits from their hedging and buying more metal without additional capital investment. Is anyone on here doing a similar thing? If so, what has the experience been like, and what type of instruments are you using? Has it been worthwhile over the period that you have done it or has it been an additional cost impacting returns?
Have this note about hedging in my phone, no idea who it was from but keep meaning to follow up on it;
Yes. I hedge my phys position. Always have. Like it or not, physical is a fully exposed naked long based on blind faith (but dealers already know this ). It has worked out brilliantly for me. Over the last 2.5 years, I have maintained my average silver buy price equivalent to current spot as it dropped from $35, and my ave gold price to just above $1000. I use CFD's, as costs are minimal (spread only a few pips) and leverage is favourable. Also, for short trades, the margin is inverted in your favour, so you actually receive interest payments. Associated costs for short trades (physical hedge) can actually workout cash flow positive. This time last year when $26 was busted was an absolute gimme, with the results speaking for themselves: http://forums.silverstackers.com/message-514276.html#p514276
It's all here: http://forums.silverstackers.com/topic-22773-i-don-t-wanna-stack-i-wanna-tradeplease-help.html And here: http://forums.silverstackers.com/topic-27970-silver-charting-and-silver-ta-chat.html
When you say you have always have hedged - does that mean you constantly have a short position equal to your physical ? Or have you taken short positions only at times where the price looked like it was about to drop ? If you are constantly covering your physical during sideways or up periods then what are the shorts costing in relation to the physical ? Those of us who don't already trade CFDs would have to balance out the effort and cost of getting into it against whatever potential loss there is to be hedged.
I only cover when I see a probable impending drop. I let my long physical position ride the increases or sideways. There is a bit of effort required, but that goes for anything that reaps rewards. The potential loss is staggering if you take the last couple of years into consideration - about 50%!!!!! In any other investment class, this would be considered devastating, .... But many stackers seem to consider themselves immune to this... .????
Is anyone using options to just cover their physical position over the long term? Like a "set and forget" hedge?
So what percentage of times has the drop not eventuated and how much did that covering cost ? Or don't you ever get it wrong ? I guess it depends when you took out the options but are your puts at prices higher than current spot or lower ? Obviously buying put options now above current spot would be high premium whereas below current spot would be cheaper but only protect falls below that price point. With perfect 20/20 hindsight it obviously would have been ideal to take put options back when silver was $40 What would you do now ?
Thanks - this is the sort of stuff I was interested in. Thinking about how put options could play a part in a tweaked version of a permanent portfolio, or as part of a GSR strategy.
No system is perfect - nobody gets a 100% strike rate. Incorrect trade entries using my trading methods occur about 25% of the time, and cost about 1% of the underlying physical. However, correct trade entries ensure Any losses are well and truly overcompensated for. My risk management and trade expectancy is rigorous enough to ensure that none of my losses would ever cost anywhere near the time premium of a 2020 put option!
Apologies for the slight thread derailment, but can you post a link to that thread? I did a quick search and didn't find it. Thanks!
I'm pretty sure it was this thread: http://forums.silverstackers.com/topic-11976-tightwad-tuesday.html
Yes, I'm doing this. I'm part of a small investment syndicate (limited to about a dozen members), run out of the UK, It's been structured as a company, with members issued shares based on the value of their initial investment. The guy who runs the show is trading gold covered put warrants, issued by Societe Generale. The members of the syndicate are all like-minded individuals, who believe a Freegold system (http://fofoa.blogspot.com/) will emerge in the near future. The derivatives trades make us more profit the further the price of gold falls. The plan is to exit the trade at a predetermined price level (with a sizable safety buffer above the level where we expect paper gold markets might cease to trade) and use the profits to buy more physical gold. I'm under no illusion of the risk involved, and my investment is about 20% of the value of the physical gold I already hold.
simple 1. buy phisical metal 2 buy put option on the metal ETF or sell call option on the same ETF make sure you make calculations of how much to buy and sell right - it is crucial! I found this way pain in the ass as I am not buying that much physical every month ... and I am not bothered if metals dive in as my cost average is in single digits for silver (not big fan of gold)
