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Beating Buy and Hold (thru disciplined speculation)


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This chart will show you why I like comparing SLW with SLV

 

LOOKING BACK - to when SLW-to-SLV ratio first hit 1.00...

 

2010 : =SLW= : =SLV=

2/10 : $14.38 : $14.95

2/11 : $15.04 : $15.37

2/12 : $15.14 : $15.24

2/16 : $15.75 : $15.82 : -$0.07

2/17 : $15.59 : $15.74

2/18 : $15.71 : $15.88

2/19 : $15.67 : $15.97

2/22 : $15.59 : $15.90

2/23 : $14.76 : $15.57

2/24 : $14.58 : $15.62

 

SLW-vs-SLV ... update :

 

slwvsslv.gif

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PRICE: 10/28'1 10/21'1 10/14'1 10/7/11 9/30/11 9/23/11 9/16/11 9/09/11 : 9/02/11

SLV--: $34.27 : $30.48 : $31.34 : $30.23 : $28.91 : $29.98 : $39.39 : $40.52 : $42.18 :

Change: +$3.79 : -$0.86 : +$1.11 : +$1.32 : -$1.07 : -$9.41 : - $1.13 : - $1.66 : +$1.77 :

Silver : $35.37 : $31.36 : $32.17 : $31.23 : $29.98 : $31.08 : $40.67 : $41.43 : $43.26 :

Prem. : +$1.10 : +$0.88 : +$0.83 : +$1.00 : +$1.07 : +$1.10 : +$1.38 : +$0.91 : +$1.08 :

ZSL-- : $11.05 : $14.24 : $13.66 : $14.83 : $17.11 : $19.34 : $12.11 : $11.51 : $10.70 :

$42-X : $30.95 : $27.76 : $28.34 : $27.17 : $24.89 : $22.66 : $29.89 : $30.49 : $31.30 :

ZX/slv : 90.00% : 91.08%: 90.42% : 89.88%: 86.09%: 75.58%: 75.88%: 75.25%: 74.21%:

====

DXY--- : 75.089 : 76.276 : 76.607 : 78.753: 78.796 : $78.30 : $76.54 : $77.20 : $75.25 :

UUP---: $21.16 : $21.54 : $21.65 : 22.270 : 22.305 : $22.20 : $21.74 : $21.91 : $21.22 :

CRB--- : 323.07 : 311.08 : 317.18 : 303.52 : 298.15 : 301.87 : 329.55 : 334.24 : 338.06 :

DBA---: $31.03 : $30.76 : $31.18 : $29.89 : 29.665 : $30.13 :

Rsilver : : 7.000 :: 7.474 : 7.569 : 7.848 : 7.640 : : 7.776 : : 9.161 : : 9.019 : : 9.389 : : 8.897 : :

===

Ap$23c: 12.10 : $8.97 : $9.62 : $8.97 / $8.35 /

Ja.$25c: $9.77 : $6.65 : $7.27 : $6.77 : $5.97 : $6.72 / $7.95 /

Ja.$28c: $7.17 : $4.52 : $4.15 :

Ja.$30c: $5.62 / $3.87 /

Ja.$35c: $2.71 : $1.46 : $1.77 : $1.89 : $1.66 : $2.11 / $5.60 /

ATX.v--: $0.52 : $0.61 : $0.67 : $0.68 : $0.61 : $0.75 : $0.85 : $0.80 : $0.79 : $0.90 : $0.91 :

DBA$30c $1.82 : $1.80 : $2.17 : $1.52 : $1.42 : $1.67 / $2.90 /

SlwJ$25c 11.47 : $6.37 / $5.50 /

SlwJ$32c $5.82 / $3.75 /

ZslNv$12c $1.00 / $1.90 /

GldD$134 35.95 / 24.0 /

==== ====

 

Trades This Week:

BOT- : SLV- Jan.$30calls at $3.87 x 1,000 = (-$3,870 : -AP#1)

SOLD: SLW-Jan.$32calls at $3.75 x 1,000 = (+$3,750 : +AP#1)

SOLD: SLV-Silver etf : at $32.79 x 1,000 = (+$32,790 : -AP#1)

BOT: ZSL.Nov$11-2xNeg. $1.90 x 2,000 = (-$3,800 : -AP#1)

BOT: GLD.Dec$134 calls : $24.00 x 400 = (-$9,600 : -AP#1)

(GLD-Dec.$134 calls, which I bought at an average of $24.00* ;

I hold these in the AP#1 portfolio until I can buy at least 2,000 oz/sh. Silver/SLV)

==== ====

*I am holding these in another portfolio, and I shall have to work out how many

are equivalent to 2,000 shares of SLV - the best equiv. : 2000-SLV = 400-GLD

==== ====

Cash: start.Wk / EndofWk== / Core-start / End / ==Chg.Cash

AP1: $275,910 / $295,180 // 6,000 / 5,000 / ==: +$32,790 +$3,750 -$3,870 -$3,800 -$9,600 = +$19,270

AP2: $219,435 / $219,435 // 8,000 / 8,000 / ==: +$0

 

WEEKLY Spreadsheet : http://tinyurl.com/beatingBH

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As I said, one day traders may open their brokerage accounts and just get "404 - page not found".

 

"Panic Behind The MF Scenes As Company Refuses To Disclose Information To Regulators Even In Death"

 

http://www.zerohedge.com/news/panic-behind-mf-scenes-company-refuses-disclose-information-regulators-even-death

 

"Regulators Investigating MF Global for Missing Money"

 

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

 

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

 

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

 

http://dealbook.nytimes.com/2011/10/31/regulators-investigating-mf-global/

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As I said, one day traders may open their brokerage accounts and just get "404 - page not found".

 

"Panic Behind The MF Scenes As Company Refuses To Disclose Information To Regulators Even In Death"

 

http://www.zerohedge.com/news/panic-behind-mf-scenes-company-refuses-disclose-information-regulators-even-death

 

"Regulators Investigating MF Global for Missing Money"

 

http://dealbook.nytimes.com/2011/10/31/regulators-investigating-mf-global/

Corzine (or his colleagues) may be headed to jail.

But banks can steal from safety deposit boxes (governments too!), and neighbors can steal gold too.

 

So far, there is not clear evidence that MFG account holders will lose a penny.

 

Meantime, the Beating B&H accounts are about 50% ahead of Buy & Hold.

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Corzine (or his colleagues) may be headed to jail.

But banks can steal from safety deposit boxes (governments too!), and neighbors can steal gold too.

 

So far, there is not clear evidence that MFG account holders will lose a penny.

 

Meantime, the Beating B&H accounts are about 50% ahead of Buy & Hold.

 

That's true. But I think there is little motivation for a private vaulting company to steal their clients' gold. It's certainly possible, but I use an institution in the City that has been doing this for well over 100 years, so I don't see it happening.

 

On the other hand, with MF Global we have a clear(ish) indication that financial criminals will do 'whatever it takes' when backed into a corner. This speaks to the wanton criminality of those in control of the financial system.

 

I don't think anyone will lose any money - the difference will be printed. But I think during and after a systemic financial crisis, people may be left fighting class action lawsuits and bureaucratic government compensation schemes to get their money back.

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MF Customers May Wait Years for Cash If Firm Sued, Grede Says

 

Nov. 2 (Bloomberg) -- MF Global Holdings Ltd. customers may have to wait years to get their money back if the futures broker is sued, according to Frederick Grede, the liquidation trustee overseeing the bankruptcy of Sentinel Management Group Inc.

 

“People should expect that the money on deposit with MF Global will be tied up for some time,” Grede said in a telephone interview today. Grede, a former chief executive officer of the Hong Kong Futures Exchange, has sought to recover about $600 million of customer money from Sentinel, the futures broker that filed for bankruptcy in 2007. “If litigation is involved it well could be years” for MF Global customers, he said.

 

http://www.businessweek.com/news/2011-11-02/mf-customers-may-wait-years-for-cash-if-firm-sued-grede-says.html

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Of course, this news has nothing to do with my trading here.

 

I am using Fidelity (in the US) and HSBC in Hong kong - two of the strongest.

 

MF Global was a weaker broker, which has been in trouble before.

And for those who buy Juniors and own physical gold, you need to be careful with which broker you deal

with, just like you need to be careful about where and how you hold your Gold. Bullion storage companies

are not risk free either

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To provide timing flexibility, I sell now 200 shares of HK-2840 (The HK traded version of GLD)

 

SOLD HK-2840 (HK's version of GLD) at HK$1308 x 200

 

(This is against the GLD-calls that I hold, and is therefore risk-reducing)

 

SLV has fallen more that Gold in recent days,

and closed at $33.12 in aftermarket trading - $33.25 in normal trading,

Versus: GLD's $168.92 aftermarket, $169.06 - Normal trading.

 

That's a Ratio of 5.100 aftermkt, 5.085 normal trading

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"Seers" ramp Gold

 

Gold Seers Forecast Record High in MarchQBy Debarati Roy - Nov 2, 2011 12:20 PM PT

 

Top Gold Forecasters See Rally to Record by March Chris Ratcliffe/Bloomberg

Prices climbed 6.3 percent in October after dropping more than 20 percent from the record $1,923.70 reached Sept. 6.

 

Prices climbed 6.3 percent in October after dropping more than 20 percent from the record $1,923.70 reached Sept. 6. Photographer: Chris Ratcliffe/Bloomberg

Play Video

QNov. 1 (Bloomberg) -- Coast Sullenger, managing director at Gaia Capital Advisors, discusses commodity prices and his recommendation of gold shares and agricultural commodities. He speaks from Geneva with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

Attachment: Precious Metals Ranking The most accurate forecasters say gold will rebound from its biggest monthly plunge since 2008 and reach a record by March because economic growth is stagnating and Europe’s debt crisis is unresolved.

 

Futures traded in New York may rise 13 percent to $1,950 an ounce by the end of the first quarter, according to the median of estimates compiled by Bloomberg. The predictions are from eight of the top 10 analysts tracked by Bloomberg over the past eight quarters. Two declined to give forecasts.

 

Holdings in exchange-traded products backed by bullion rose the most in three months in October, and the most-widely held option gives owners the right to buy gold at $2,000 by Nov. 22. Demand for the metal accelerated since May as slowing growth and mounting concern that European leaders will fail to contain the region’s debt crisis caused $7.5 trillion to be erased from the value of global equities.

 

“There is a loss of trust in the entire financial system and urgent need for safe-haven investment,” said Ronald Stoeferle at Erste Group Bank AG in Vienna, the second most- accurate forecaster in the past three months. “The environment for gold is just perfect.”

 

ETP holdings expanded 1 percent to 2,271.2 metric tons last month, a pile now valued at $126.6 billion and greater than the reserves of all but four central banks, data compiled by Bloomberg show. Bullion bought for investment accounted for 38 percent of total demand in 2010, compared with about 4 percent a decade earlier, the London-based World Gold Council estimates.

 

Paulson Buys Gold

Paulson & Co., founded by John Paulson, remains the largest shareholder in the SPDR Gold Trust, the biggest ETP backed by physical metal, according to an Aug. 15 filing with the U.S. Securities and Exchange Commission. Paulson, who made $15 billion betting against subprime mortgages, bought the 31.5 million shares in the first three months of 2009. Their value increased to $5.3 billion from $2.84 billion since then.

 

Gold has risen 22 percent this year, beating the 1.8 percent advance in the Standard & Poor’s GSCI gauge of 24 commodities, the 8.3 percent decline in the MSCI All-Country World Index of equities and the 8.8 percent return on Treasuries calculated by Bank of America Corp. indexes. The metal has appreciated more than sixfold in its 11-year run of annual gains.

 

/more: http://www.bloomberg.com/news/2011-11-01/top-gold-forecasters-see-bullion-rallying-to-record-by-march-commodities.html

 

This is old news - so who is getting this story out, and why?

Paulson may be soon forced to sell GLD to meet redemptions

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keep it in proportion, ladies and gentlemen:]

fear mongers are trying to blow the mf global story up into something bigger that it is:

 

the reality is that a tiny percentage of traders may loss some portion of their money in this incident

 

meantime, all of the buy and hold wizards have lost about 1/3 of the value of their accounts since silver fell from $50 to a price 1/3 lower. look at reality, not a the fears people are trying to get you to focus on

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To provide timing flexibility, I sell now 200 shares of HK-2840 (The HK traded version of GLD)

SOLD HK-2840 (HK's version of GLD) at HK$1308 x 200

(This is against the GLD-calls that I hold, and is therefore risk-reducing)

sold another 50 at hk$1331

 

...from above...

And closed at $33.12 in aftermarket trading - $33.25 in normal trading,

Versus: GLD's $168.92 aftermarket, $169.06 - Normal trading.

That's a Ratio of 5.100 aftermkt, 5.085 normal trading

 

(in edit):

COMPARE friday's closing levels:

GLD == : 170.85 - $0.87 / - 0.51%

SLV == : $33.20 - 0.418 / - 1.24%

G/S == : 5.146

HK2840: 1,331.0 +24.0 / + 1.84%

HK/GLD: 7.791

HK/SLV: 40.09

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...The thing is with owning physical metal you don't get margin calls for it in dollars, so there isn't anything to worry about when the dollar price goes down.

If at $50, you had sold your silver, and spent $7 on a $45 Call, you would have had:

 

+ Nearly the same upside, if the price kept rising

+ No risk of margin calls

+ $43 in the bank, awaiting a better buy opportunity

 

How could holding silver at such a high and vulnerable price have been better than that?

 

I spot such opportunties often, and that is the essence of how I beat Buy and Hold

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If at $50, you had sold your silver, and spent $7 on a $45 Call, you would have had:

 

+ Nearly the same upside, if the price kept rising

+ No risk of margin calls

+ $43 in the bank, awaiting a better buy opportunity

 

How could holding silver at such a high an vulnerable price have been better than that?

 

I spot such opportunties often, and that is the essence of how I beat Buy and Hold

Yeah but did you actually have the silver to sell at $50? The truth is that silver got to around $48.70 for a very short amount of time, a holder of physical metal would have to have been extremely lucky to sell at the exact top.

 

I don't understand why you would pay $7 for the right to buy a call for silver at $45. If you had managed to sell at the exact top, you would have $41.70 after buying your call for $7. You would also have the right to buy silver at $45, but then you only actually have $41.70. Isn't buying a call on $45 silver for $7 like buying silver at $52 per oz? Plus you would have the additional risk of holding a paper asset in the middle of the worst financial crisis ever.

Please can you explain to me the logic behind your wanting to do this, as it looks to me that you are selling something safe to hold something very risky.

 

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PRICE: 11/04'1 10/28'1 10/21'1 10/14'1 10/7/11 9/30/11 9/23/11 9/16/11

SLV--: $33.20 : $34.27 : $30.48 : $31.34 : $30.23 : $28.91 : $29.98 : $39.39 :

Change: - $1.27 : +$3.79 : -$0.86 : +$1.11 : +$1.32 : -$1.07 : -$9.41 : - $1.13 :

Silver : $34.15 : $35.37 : $31.36 : $32.17 : $31.23 : $29.98 : $31.08 : $40.67 :

Prem. : +$0.95 : +$1.10 : +$0.88 : +$0.83 : +$1.00 : +$1.07 : +$1.10 : +$1.38 :

ZSL-- : $11.62 : $11.05 : $14.24 : $13.66 : $14.83 : $17.11 : $19.34 : $12.11 :

$42-X : $30.38 : $30.95 : $27.76 : $28.34 : $27.17 : $24.89 : $22.66 : $29.89 :

ZX/slv : 91.51% : 90.31% : 91.08%: 90.42% : 89.88%: 86.09%: 75.58%: 75.88%:

====

DXY--- : 76.911 : 75.089 : 76.276 : 76.607 : 78.753: 78.796 : $78.30 : $76.54 :

UUP---: $21.71 : $21.16 : $21.54 : $21.65 : 22.270 : 22.305 : $22.20 : $21.74 :

CRB--- : 320.44 : 323.07 : 311.08 : 317.18 : 303.52 : 298.15 : 301.87 : 329.55 :

DBA---: $30.62 : $31.03 : $30.76 : $31.18 : $29.89 : 29.665 : $30.13 :

Rsilver : : 7.969 :: 7.965 :: 7.474 : 7.569 : 7.848 : 7.640 : : 7.776 : : 9.161 : : 9.019 :

===

Ap$23c: 11.07 : 12.10 : $8.97 : $9.62 : $8.97 / $8.35 /

Ja.$25c: $8.72 : $9.77 : $6.65 : $7.27 : $6.77 : $5.97 :

Ja.$28c: $6.20 : $7.17 : $4.52 : $4.15 :

Ja.$30c: $4.75 : $5.62 / $3.87 /

Ja.$35c: $2.09 : $2.71 : $1.46 : $1.77 : $1.89 : $1.66 : $2.11 / $5.60 /

ATX.v--: 0.435 : $0.52 : $0.61 : $0.67 : $0.68 : $0.61 : $0.75 : $0.85 : $0.80 : $0.79 :

DBA$30c $1.45 : $1.82 : $1.80 : $2.17 : $1.52 : $1.42 : $1.67 / $2.90 /

SlwJ$25c 11.62 : 11.47 : $6.37 / $5.50 /

SlwJ$32c $6.00 : $5.82 / $3.75 /

ZslNv$12c $1.20 : $1.00 / $1.90 /

GldD$134 37.05 : 35.95 / 24.0 /

hk2840g- 1331. / 1,000 / $7.77

GLD-ny$ 170.85 :

==== ====

 

Trades This Week:

SOLD HK-2840 (HK's version of GLD) at HK$1308 x 200 (+$33,668 : +AP#1) at $7.77

(a few days sold another 50 at hk$1331):

SOLD HK-2840 (HK's version of GLD) at HK$1331 x 050 (+$8,565 : +AP#1) at $7.77

==========

Cash: start.Wk / EndofWk== / Core-start / End / ==Chg.Cash

AP1: $295,180 / $337,413 // 5,000 / 5,000 / ==: +$33,668 + $8,565 = +$42,233

AP2: $219,435 / $219,435 // 8,000 / 8,000 / ==: +$0

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Yeah but did you actually have the silver to sell at $50? The truth is that silver got to around $48.70 for a very short amount of time, a holder of physical metal would have to have been extremely lucky to sell at the exact top.

 

I don't understand why you would pay $7 for the right to buy a call for silver at $45. If you had managed to sell at the exact top, you would have $41.70 after buying your call for $7. You would also have the right to buy silver at $45, but then you only actually have $41.70. Isn't buying a call on $45 silver for $7 like buying silver at $52 per oz? Plus you would have the additional risk of holding a paper asset in the middle of the worst financial crisis ever.

Please can you explain to me the logic behind your wanting to do this, as it looks to me that you are selling something safe to hold something very risky.

BUMP

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Yeah but did you actually have the silver to sell at $50? The truth is that silver got to around $48.70 for a very short amount of time, a holder of physical metal would have to have been extremely lucky to sell at the exact top.

 

I don't understand why you would pay $7 for the right to buy a call for silver at $45. If you had managed to sell at the exact top, you would have $41.70 after buying your call for $7. You would also have the right to buy silver at $45, but then you only actually have $41.70. Isn't buying a call on $45 silver for $7 like buying silver at $52 per oz? Plus you would have the additional risk of holding a paper asset in the middle of the worst financial crisis ever.

Please can you explain to me the logic behind your wanting to do this, as it looks to me that you are selling something safe to hold something very risky.

From your comments, I think you are starting to "get it":

 

+ Yes, I "give away" $2 of the possible upside in my example, but in return:

+ I can lose no more than the $7 that you pay for the Call option

+ If prices fall, no matter how far they fall, I will still have the $45 in cash

 

Is this a good deal?

It can be, if prices prove volatile enough during the options period.

 

Particularly, if Silver is very vulnerable to a downside correction when you do the "switch" from Silver into Cash-plus-a-Call. Indeed, I have spotted several less dramatic times when it makes sense to do a switch like that and I have switched out of some of my Silver or SLV longs into Cash-plus-Calls.

 

Perhaps you think the $2 is just wasted - but that assumes you know with certainty that prices will fall. Whwn I started this thread, I switched out of buy and hold and into cash, because I was pretty certain that prices would fall, and did not want to waste any money buying calls. I started buying some calls later, after prices had falled far enough that I could get a cheaper call price, and a lower strike price, and still hold onto most of my cash.

 

I have never exposed myslef to margin calls, because I always have plenty of cash to exercise the options, and alao I am buying calls, and so have the right to chose whether I want to exercise. The only time I sell Calls (and then give someone else the right to exercise) is when my position in the call I have sold is protected by owning the underlying silver (or stock) or a call at a lower price. So if someone exercises a Call I have sold, I can simply deliver and get the strike price as a payment - Or exercise the lower strike call that I own.

 

In effect, I am always holdind a flexible position, and am never at the whim of the market. The main way that I might lsoe money, is through time decay, as the options that I own lose some value as they approach the maturity date. But I buy my options very carefully, and very strategically, only paying the options premiums when I think I can gain some benefit from the flexibility that I am paying for.

 

Returning to the original example of spending $7 on a call at a $45 strike price, if there is enough time to maturity, there are various ways that I can "trade around" the position:

 

(1) If prices fall to below $45, then I can buy SLV more cheaply. For example, if I buy SLV at $38, then I will have: SLV + $7 cash + A $45call, and then

 

(2) I can sell the $45 call, and maybe recover $2 cash from it, and that would raise my cash position to $9, so my position would be: SLV-worth-$38 + $9 cash. Obviously, that's better than just owning SLV worth $38, which is where I would have been if I had stayed with Buy & Hold, or

 

(3) I might hold onto the $45call and hope prices rise back again. On the way up: I have the SLV shares plus a double the upside over $45.

 

If you look at my position : http://tinyurl.com/BeatingBH

... You will see the various forms of flexibility that I now hold. A move in either direction creates opportunities that I can capitalise upon, if I ma clever about what I do. I also hold plenty of cash in both Alternative portfolios, and that adds to my flexibility.

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From your comments, I think you are starting to "get it":

 

+ Yes, I "give away" $2 of the possible upside in my example, but in return:

+ I can lose no more than the $7 that you pay for the Call option

+ If prices fall, no matter how far they fall, I will still have the $45 in cash

 

Is this a good deal?

It can be, if prices prove volatile enough during the options period.

 

Particularly, if Silver is very vulnerable to a downside correction when you do the "switch" from Silver into Cash-plus-a-Call. Indeed, I have spotted several less dramatic times when it makes sense to do a switch like that and I have switched out of some of my Silver or SLV longs into Cash-plus-Calls.

 

Perhaps you think the $2 is just wasted - but that assumes you know with certainty that prices will fall. Whwn I started this thread, I switched out of buy and hold and into cash, because I was pretty certain that prices would fall, and did not want to waste any money buying calls. I started buying some calls later, after prices had falled far enough that I could get a cheaper call price, and a lower strike price, and still hold onto most of my cash.

 

I have never exposed myslef to margin calls, because I always have plenty of cash to exercise the options, and alao I am buying calls, and so have the right to chose whether I want to exercise. The only time I sell Calls (and then give someone else the right to exercise) is when my position in the call I have sold is protected by owning the underlying silver (or stock) or a call at a lower price. So if someone exercises a Call I have sold, I can simply deliver and get the strike price as a payment - Or exercise the lower strike call that I own.

 

In effect, I am always holdind a flexible position, and am never at the whim of the market. The main way that I might lsoe money, is through time decay, as the options that I own lose some value as they approach the maturity date. But I buy my options very carefully, and very strategically, only paying the options premiums when I think I can gain some benefit from the flexibility that I am paying for.

 

Returning to the original example of spending $7 on a call at a $45 strike price, if there is enough time to maturity, there are various ways that I can "trade around" the position:

 

(1) If prices fall to below $45, then I can buy SLV more cheaply. For example, if I buy SLV at $38, then I will have: SLV + $7 cash + A $45call, and then

 

(2) I can sell the $45 call, and maybe recover $2 cash from it, and that would raise my cash position to $9, so my position would be: SLV-worth-$38 + $9 cash. Obviously, that's better than just owning SLV worth $38, which is where I would have been if I had stayed with Buy & Hold, or

 

(3) I might hold onto the $45call and hope prices rise back again. On the way up: I have the SLV shares plus a double the upside over $45.

 

If you look at my position : http://tinyurl.com/BeatingBH

... You will see the various forms of flexibility that I now hold. A move in either direction creates opportunities that I can capitalise upon, if I ma clever about what I do. I also hold plenty of cash in both Alternative portfolios, and that adds to my flexibility.

 

 

Cheers for that post DrB, I think I am understanding your hedging strategy a little better!

 

 

So what is your current ratio of physically held silver/ calls/puts options on physical silver/cash?

 

 

 

Regards

 

ML

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Cheers for that post DrB, I think I am understanding your hedging strategy a little better!

So what is your current ratio of physically held silver/ calls/puts options on physical silver/cash?

Regards

ML

... From above - I shall be updating this shortly ...

(Note: the comparable B&H portfolio is 10,000 oz. Long)

 

QUOTE

You may notice / see spreadsheet : http://tinyurl.com/beatingBH

 

I can now summarise my Silver holdings this way:

CORE+

==== PhysAG : SLV- : CORE : InThe$ : OutOf$ : Total

AP#1 : 4,000 : 2,000 :: 6,000 :: 2,000 : 2,000 : 10,000

AP#2 : 6,000 : 2,000 :: 8,000 :: 2,000 : 0,000 : 10,000

 

Notes:

CORE is Physical Silver plus SLV shares

InThe$ : In the money SLV calls, with strikes below Friday's SLV closing

OutOf$ : SLV calls with strikes above the SLV closing price

= = = = = = = = = = = = =

 

If SLV hits my new target of $28 (400d-MA), then I shall add to the CORE Silver longs position, so if Silver moves back up, I can stay ahead of the B&H portfolio. The continued strong cash position gives me the flexibility to add more Silver or SLV calls whenever I like. If we see the target price, I am prepared to push the Core Silver up to 14,000 or even 15,000 - but I will not go so high if I add more in-the-money calls.

UNQUOTE

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I am going to leave this fantasy $50 silver price out of this as the price hasn't hit there yet.

 

So say in reality you sold at the exact high of $48.70 (which would be highly unlikely), you would then have paid $7 for you $45 call. You would have $41.30 in your bank account and own the right to buy silver at $45. So you have in effect turned one ounce of silver into $41.30 and also own a call on silver at $45, which has cost you $7.

 

I still can't see why that is a good thing to do as in effect you have turned something of physical value into paper at a lesser value and a paper contract to buy that silver back at more than the paper you have.

 

Lets do the maths on this;

 

Sale price $48.70

Call Price $7

 

$7 / $48.70 x 100 = 14.37%

 

So in effect you have given away 14.37% of your gain in silver for the right to buy it at $45 which is actually around 8% below the price you sold at.

 

I could see how you could make this work by selling at the exact high then waiting for the price to crash then buying a call cheaper at a lower price. But the problem I have with it is the fact that you are turning something physical into something which is someone else's liability (we are in the middle of a massive financial crisis having counter party risk is the thing to avoid IMO) and you also need the silver price to fall a lot to make your trade work.

 

I think a much better idea would be to buy & hold physical ounces of silver and then when you thought that silver was at a temporary peak to sell a call. That way you would pocket the call price and still own the silver. If you got it wrong you would have sold some silver at the high price but would have got the bonus of the call price. If not you would have the silver still and the ability to buy some more cheaper.

 

But as I have explained plenty of times I am not interested in trading, I think silver is a great thing to just keep adding to on dips over the next few years. I would rather spend my time earning money doing real work then use those fresh funds to buy in the next silver sale.

 

There is obviously the risk of the governments actually starting to face up to the mess they have created, but I don't see that happening. The CB's basically have two options, one to allow the deflation and defaults to take hold, or two via financial repression keeping rates low and creating inflation from bailouts and QE. I think they will go down route two so that is why I feel happy with my buy and hold strategy of silver. As I have been saying for years they will not and cannot allow deflation to take hold, they have access to the means to stop it and will continue to as they have been.

 

This strategy has been working for the last 4 years and as far as I can see will continue to work while this crisis remains unresolved. It leaves me in a position which isn't dependant on anyone honouring a contract or requiring me to leave large sums in a fiat currency. So as much as you can beat me with your complex trading strategy I still prefer my very simple buy and hold one. The risk of using paper instruments in the largest financial crisis ever is larger I think than you make people aware of.

 

The MF Global situation has helped to make my point recently. I noticed that Turd Ferguson was gracious enough to apologise to his readers on Tuesday;

 

MFing Global

Tuesday, November 1, 2011 at 2:36 pm

 

Man, this last 36 hours has been no fun at all. But, at least I don't work for MFing Global. I feel awful for the good employees from the former Lind-Waldock. Sucks. It just plain sucks.

 

Sucks for me, too. In order to buy some out-of-the-money, 2012 gold and silver calls, I just sent them a check last week. My bank informed me this morning that they can't stop payment because the check has already cleared. Shit. That money is either gone for good or, at a minimum, tied up for a long time to come. For all of you who are clients of MFing Global because you had heard such good things about Lind through this website, I am truly sorry. Of course, none of us could have seen this coming but I feel terrible, nonetheless. I'll be doing some research on this end and, when I decide upon another futures/options broker, I'll be sure to let you know...

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Pixel,

 

You are making a big deal out of nothing - that was only an example designed to show how options work.

 

If you bother to go back to the very beginning of thisb thread - the premise was explained:

"XX"

 

To beat buy and hold, I started out with equal value in three portfolios:

 

+ B&H: was the Buy & Hold portfolio - consisting of 10,000 oz

+ AP#1 was the Alternative Portfolio #1, assuming I had sold my silver at $XX, and was sitting in cash

+ AP#2 was the same as #1, but with the idea of trading less, and being less aggressive

 

Had I been very worried about prices shooting back up immediately, I would have bought calls, such as in my example. But I did not have that fear, and was willing to wait in both portfolios. I have recorded ALL the trades since then, and:

 

B&H : is now still 10,000 oz of Silver

AP#1: is over 50% ahead of B&H

AP#2: is over 50% ahead of B&H

 

The technique of switching out of AG or SLV longs into Cash+Calls, has been used several times for parts of each AP portfolio. It is one of my standard techniques. Another is to buy options which benefit from Silver's fall, such as SLV puts, or ZSL calls.

 

== == ==

 

 

FRAUD can occur at many levels:

 

+ It can occur with the broker who holds your options or junior miner,

+ It can occur with the bank or Bullion storage firm where you store your gold,

+ Your neighbor can promise you not to tell anyone about your secret stash, and then grab his shovel and dig up your gold

 

The fact is, the vast majority of people (including me!) who use SLV etfs and calls for hedging have had no disruption from the MF Global fraud and bnankruptcy, and even those who suffer delays seem likely to get their money (invested in those instruments) back from various guarantees.

 

As per usual:

You are focussed on the wrong risk !

 

The price risk that your are happy to take, has hurt you more than the MF Global bankruptcy has hit the average GLD and SLV investor.

 

Get over your anti-trader obessession and you might learn something useful.

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The risk in your trading strategy was very much illustrated by the MF Global bankruptcy this week.

 

Imagine if you had sold your silver at $48.70 then bought the $7 call and had your cash sitting on account at MF Global waiting for the opportunity to buy back in. Your cash would have then been lost for a very long time leaving you in a line of creditors waiting for it to be returned, leaving you holding a call which would expire worthless because you couldn't exercise it as you no longer had the cash to do so. You would have wasted your $7 and actually just be a creditor to a bankrupt bank for your $41.30, while fiat currency continues to meltdown and silver continues to accelerate away.

 

In an ideal world things could have gone the way you are saying, the cash could have sat in another bank, but in reality it could well have been sat in your dealers account. If you had been doing your options trading via MF Global you would now be completely screwed without any protection and all for the chance of making a bit more.

 

You must be able to see what I am talking about here and how your trading strategy does have some additional risks which you are not adding into your fantasy calculations.

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As per usual:

You are focussed on the wrong risk !

 

The price risk that your are happy to take, has hurt you more than the MF Global bankruptcy has hit the average GLD and SLV investor.

 

Get over your anti-trader obessession and you might learn something useful.

I am not so sure that I am focused on the wrong risk. You talk about the average GLD or SLV investor, do you think they realise that they are a creditor of two of the largest shorts in the metals markets HSBC & JPM. HSBC is the largest short of futures in Gold and also is the custodian of the GLD & JPM is the largest short of futures in Silver and also is the custodian of the SLV, does that not seem a little bit strange to you?. I look at that and see all sorts of future problems and reasons as to why things happen the way they do currently.

 

I think you have far to much faith in a obviously failing banking system. I already am blatantly aware of what you are doing, I chose not to follow not through lack of know who but though knowing too much about the other risks in this crisis, which you always seem to be brushing off even when they are put to you.

 

MF Global was not a little dealer so a whole load of traders will very much be effected by their bankruptcy, they could also be the first amongst many. The reading I have been doing over the past 5 years has all pointed to the fact that the banks are nearly all actually bankrupt if their derivatives positions were accounted for correctly. The 50% haircut on Greek debt and the agreement not to pay out on CDS insurance bought down MFG. Ask yourself who and what is next and really how 'hedged' are they when the rules can be changed at will.

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So say in reality you sold at the exact high of $48.70 (which would be highly unlikely)

 

 

I did just that :)

 

In Russia the high was 45000 rubles per kilo and it was possible to trade at this price for 3 days.

Silver made a double top, the first top lasted for just 1 day, and the second top held this price in Russia for 2 days.

 

I took the opportunity and sold 7 kilos of physical Silver, as I feared 50 could prove too much of an obstacle on the first go, and I later bought back my metal after Silver corrected 47%.

 

So I am a rare breed who hit the exact top and bought back as close to the bottom as to make no difference.

 

So basically my experience is the best possible outcome for someone trading real physical metal.

 

BUT WAS IT WORTH IT?

Well that is a no brainer with the huge correction Silver had :rolleyes: - or is it? <_<

 

I will share my example and You will be surprised how LITTLE profit I made from my perfect timing.

 

First of all there is a difference between buy and sell price when dealing with real physical.

45.000 rubles per kilo was the buy price - when selling you only got paid 40.500 rubles per kilo.

 

So I sold 7 kilos at 40.500 rubles, so I got 283.500 rubles in exchange for my Silver - which is enough to buy any Lada motorcar You please B)

 

The lowest point in Silver just after the crash was 27.700 rubles per kilo - I bought back later at 31.400 rubles per kilo, which in my book is pretty damn close to the bottom.

 

HOWEVER

 

On all physical sales in most countries one has to pay tax when it comes to Silver.

Tax rates vary, I believe it is 15% in Germany - in Russia it is 20%.

 

The price of 31.400 rub/kg is pre-tax.

Add 20% tax and I paid 37.680 Rubles per kilo to buy my Silver back (I prefer Silver to Lada B) ).

7 kilos at 37.680 rubles per kilo is 263.760 rubles.

 

 

So I sold at the exact top.

I bought back pretty darn close to the bottom, and what did I have to show for it:

A measly: 283.500 - 263.760 = 19.740 rubles.

 

So I risked some of my Silver on the hunch that we would get a correction - I had the near best exit and entry points that an amateur could hope to get.

Silver made a 47% correction (in $) and one had to be either a lunatic or an optimist to expect such a correction beforehand (I did, and yes I am both a lunatic and an optimist).

And all I made was a measly 7% profit.

 

My conclusion is that when dealing with real physical metal, and real world taxes and premiums - Buy and hold is the only thing that makes sense.

 

I felt very good about myself when selling at the exact top, and was honestly surprised how little real world profit I made even with my "perfect" entry and exit.

 

For us who collect physical, trading just doesn't make sense.

With paper it makes sense as the costs are much smaller.

 

I won't be trading any more Silver - although I might lighten up a bit when we get close to 100$ if I think I can put the money to better use - but not with the aim of buying back cheaper as I did this time.

 

With physical it is just not worth the effort.

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