Downside Protection Critical, No Matter How Bullish You Are (Trading Tip)

No matter how bullish you are on the long term prospects for your gold and silver holdings, I cannot emphasize how critical it is, even in a rising market, to have some form of put protection against those holdings. If the last 10 months of this silver market haven’t taught you the value of hedging your bets then I quite frankly don’t know what will.

Position Opened

I was of the view yesterday that Silver was a critical phase and that if it broke support at the 200 day moving average it could tumble quite quickly. As a result I went deep out of the money and managed to get filled on orders yesterday and this morning. Call me crazy I don’t care, but I went long 600 contracts of the April $25.00 puts on the SLV at an average entry price of .07 cents. That’s a $5,000 bet (after commission) on silver’s continued downside move. It’s peanuts compared to the hedge against the long position I have with my boxes of physical silver still marked “$8.00 – $10.00”. (I package my silver in boxes according to the price I paid for it for easy inventory and math). Most of of my physical silver and gold was sold back in the fall as I pointed out in my posts at the time but I still own a considerable amount of the cheaper stuff from years ago when I got into collecting Maples.

The last 10 months in the metals market should have taught you by now that you must not take anything for granted in this market. If you own a lot of physical then it would be wise now and then, when the charts are screaming at you to prepare for lower prices to hedge some of those bets you made with your physical purchases. If he market screams lower you made some money and you can take those profits and buy more metal if you wish or simply use that money to pay some bills. However, any failure to protect oneself is only asking for trouble.

The amount of money that investors have lost if they bought metals in the $40.00 or higher range is astounding. Some of those losses could have been minimized using put protection. Remember, when silver broke $40.00 it became harder to find at bullion shops implying the public, as is always the case, was late to the party.

In the many years of investing in metals I find no other time other than the current where there is real risk to a continuation of falling prices. I’ve been writing about it for months now in the hopes that people would see that the party in the precious metals was coming to an end, or just perhaps taking a much deserved intermission break. Sure it means risking the wrath of many staunch longs but at the end of the day, ensuring one is protected for these downside moves is critical.

The tips provided herein are not an recommendation to buy or sell and note that options are extremely volatile. I trade for quick in and outs and if we get a massive snap back rally I will close the position.