Trading Silver. 1 of 14

Transcription

1 Silver is currently trading at 5 year lows, and with rela6vely high vola6lity, this may present opportuni6es. In today s segment, we provide an analysis of trading silver. 1a of 14

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3 First, some context... Coins and jewelry make up a small segment of the silver demand (25% and 6% respec6vely). The vast majority of silver is used for industrial purposes. Addi6onally, the U.S. is the greatest consumer of silver (22%) followed by China (15%) and Japan (12%). 2a of 14

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5 Silver and the Dollar:! Silver (and also gold) are some6mes used as a hedge against infla6on.! No6ce as the Dollar increased, the price of silver decreased! The 3 month correla6on between them is a nega6ve (i.e. tends to move in opposite direc6ons). 3a of 14

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7 Silver & Gold Silver and gold have historically had a strong posi6ve rela6onship that has remained consistent. Timespan Correla6on 1 month month month a of 14

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9 Since 2012 however, silver has decreased more than gold. (- 44% versus - 24%, respec6vely) Both are at mul6- year lows. 5a of 14

10 Gold down 24% Silver down 44% 5 of 14

11 The Gold/Silver ra6o tells us how many ounces of silver equal 1 ounce of gold. If we think the ra6o is increasing, then we would buy gold and sell silver (i.e. gold outperforms.) If we think the ra6o is decreasing, we would sell gold and buy silver (i.e. silver outperforms.) 6a of 14

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13 Silver and the S&P 500 The rela6onship between silver and the S&P 500 is nearly nonexistent. Timespan Correla6on 1 month month month a of 14

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15 How can we trade Silver? The silver ETF (SLV) has advantages over silver futures. This includes not only lower trade size, but also it is suitable for long term investment since it is backed by physical silver. Silver futures (/SI) 5000 troy ounces 1 contract = $80,475 Silver ETF (SLV) 1 ounce per share 100 shares = $1,535 (roughly 100 ounces) On the other hand, the Oil ETF, USO, is not backed by physical oil. Since it is based on oil futures, a large drag exists which makes it suitable only for short- term use. 8 of 14

16 Although the silver ETF and the futures have a near perfect correla6on, over 6me the slight expense ra6o (0.50%) has caused the silver ETF to trade less than spot and under the futures. Addi6onally, a poten6al trade between the futures and ETF is non- existent. 9a of 14

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18 Silver vola;lity Vola6lity for the silver ETF (SLV) is calculated using the VIX methodology and can be viewed using the symbol VXSLV. Implied Vola6lity Implied Vola6lity Rank* VXSLV % * For us, a rank above 50% qualifies as being ideal to sell premium. 10a of 14

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20 Calcula;ng Expected/Implied moves in SLV We can use VXSLV to predict the expected price move over n days in SLV. Below we show the 1 standard devia6on* expected price move of SLV over 30 days. * This means that roughly 68% of the 6me, the price would be expected to stay within the range. 11 of 14

21 As we will see next, the implied vola6lity usually overstates the actual vola6lity. The red dots demonstrate areas where the actual move is more than the expected, while the green represent areas where the actual is less than the implied. This is why selling premium works; the actual price movement is usually less than the implied. 12a of 14

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23 To place some context around implied vola6lity, since 2013, the silver ETF has had 105 opportuni6es where IVR has been above 50. Of these days, only 13% of days did the price move outside of its implied/expected price range 30 days out. 13 of 14

24 - Takeaways! Silver is at 5 year lows with high vola6lity! We found slight nega6ve correla6on with the US Dollar, none with the S&P 500, and very high posi6ve correla6on with gold! We learned how to calculate implied movement in SLV with VXSLV! Implied vola6lity has overstated the actual movement in silver between 35% to 25% of days over the past few years 14 of 14

25 DISCLAIMER: The purpose of this material is to demonstrate market trading techniques and strategies designed to give you the skills and confidence to manage your own investments. The risk of loss in trading securi6es, op6ons, futures and forex can be substan6al. You must consider all relevant risk factors, including your own personal financial situa6on, before trading. Op6ons involve risk and are not suitable for all investors. You are assuming the en6re risk of any and all trades placed in the stock market. Due to the 6me- cri6cal nature of trading, the varying fees charged by brokerages, and the ac6vity of other market par6cipants, tastytrade cannot guarantee that similar trades you place will mirror the exact performance of the tastytrade porlolio. tastytrade is not a licensed financial advisor, registered investment advisor, registered broker- dealer or FINRA SIPC NFA- member firm. tastytrade does not provide investment or financial advice or make investment recommenda6ons. tastytrade is not in the business of transac6ng trades, nor does tastytrade agree to direct your commodity accounts or give trading advice tailored to your par6cular situa6on. Nothing contained in tastytrade s porlolio demonstra6on cons6tutes a solicita6on, recommenda6on, promo6on, or endorsement of any par6cular security, other investment product, transac6on or investment. BY USING THE TASTYTRADE WEB SITE AND ACCESSING THE TASTYTRADE MATERIALS, YOU AGREE, AT ALL TIMES, TO INDEMNIFY, DEFEND, AND HOLD TASTYTRADE (INCLUDING ANY OF ITS AFFILIATES, OR ITS RESPECTIVE SUCCESSORS AND ASSIGNS, OR ANY OF ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, LICENSORS, OPERATIONAL SERVICE PROVIDERS, ADVERTISERS, OR SUPPLIERS) HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, ACTIONS, DEMANDS, SUITS, LOSSES AND COSTS (INCLUDING ATTORNEYS FEES) RESULTING FROM TRADES YOU PLACE IN THE MARKET. TASTYTRADE SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE, OF ANY KIND, DIRECT OR INDIRECT, IN CONNECTION WITH OR ARISING FROM USE OF EDUCATIONAL SERVICES PROVIDED AS PART OF THIS PORTFOLIO DEMONSTRATION.