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Capitalizing on iShares Silver Trust ETF’s bearish trend

Just over a month ago we wrote an article on how Silver reacts in an election year. The article mentioned how silver has traditionally pulled back an average of 35% come spring and into early summer. iShares Silver Trust ETF  has continually gone down since that time, where it was trading at 33.04. It now trades at 30.55.

Does anyone remember these silver predictions for 2012?

David Morgan, publisher of Silver Investor says silver price will go above $50/oz in 2012. He forecast $65-75/oz silver by the end of 2012.

Eric Sprott, chairman of Sprott Inc the outlook for gold is phenomenal and silver is going to go up even faster. The trade should be 16:1 gold:silver ratio in 2012. That implies that at $1,600/oz gold, silver should be $100/oz.

HSBC Securities now expects the silver market to average $34 a troy ounce next year, and $32/oz the year after.

Bank of America Merrill Lynch (BofAML) Estimated that there is a good upside potential in 2012 Silver prices. As per the bank, prices should average $34/oz, followed by $37/oz in 2013, because of continued interest in the metal.

While silver investors appear to have been the most gung ho on silver’s rise in 2012, the banks– appearing more conservative– are giving a more realistic pricing of the metal. And now that earnings have started for the second quarter of 2012 and Alcoa issued a very good earnings report, what does the increase in aluminum mean for silver?

“What does aluminum mean for silver?” This could mean that we are seeing a recovery in the economy as a wider use of aluminum is taking place, people will be putting their money into stocks which in turn could mean weakness for metals in general.

With metals generally weak in the summer, Silver could very well continue to slide and find a bottom between mid June and July. Week-over-week, iShares Silver Trust has had a $53.6 million dollar outflow as of late. Expect the bearish trend to continue. Here is an option play to capitalize on the down flow:

The Options Trade

  • Buy a June 2012 ’30′ put (priced at $1.38)
  • Sell a June 2012 ’29′ put (Priced at $0.96)
  • Net Debit to Start: $0.42
  • Maximum Profit: $0.58

With the money moving out of metals and into stocks, it looks like the bears will continue to move in silver for an extend period of time and this is a good way to capitalize upon the stock. – Source: Seekingalpha

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Posted by on Apr 17 2012. Filed under Silver stocks. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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