After a banner 2010 that saw silver and its related mining stocks soar into the stratosphere, the sector’s showing signs that those silver wings can indeed be clipped. In 2010, silver prices, as represented by the iShares Silver Trust (NYSE: SLV), surged 82.5%. That’s impressive, but perhaps even more impressive was the gain experienced in the silver mining stocks, as represented by the Global X Silver Miners ETF (NYSE: SIL). This ETF began trading on Apr. 20, and through Dec. 31 was up 85.7%. These metals picks were clearly some of the best stock picks.
Yet so far in 2011, the silver sector has been tarnished by some pretty aggressive profit taking. During the first full week of trading, SLV was down 6.9%, while SIL dove 11%. Of course, precious metals traders know that this kind of sharp volatility isn’t atypical. It’s also somewhat to be expected after such a big run up in 2010, and particularly over the last three months of year. The chart here of the iShares Silver Trust tells this story eminently well.
There are two distinct ways to look at trading silver here. If you believe that silver is an overcooked precious metal just waiting for the air to pop out of its bubble, then you have several great trading options at your disposal. The first, and perhaps the easiest to own, is the ProShares UltraShort Silver (NYSE: ZSL). This is a leveraged, inverse ETF that seeks performance equal to twice the inverse of the silver bullion spot price. In essence, with ZSL you are doubling down on any slide in SLV and silver prices.
More aggressive options traders can buy SLV puts, or employ any number of sophisticated bearish options trading strategies using a variety of SLV put contracts. Put options also are available on the silver mining SIL.
If you’re still bullish on the silver trade, then the early year pullback could be just the buying opportunity you’ve been seeking. You can go long silver by adding SLV and/or SIL to your holdings. You also can add SLV and SIL call options to your trading mix, and you can employ any number of more sophisticated bullish trading strategies here.
If you’d rather take the easiest route to an aggressive long position on silver, then you can buy the ProShares Ultra Silver (NYSE: AGQ). This ETF also employs leverage, but it seeks performance equal to twice the silver bullion spot price. In essence, with AGQ you are doubling down on the upside in SLV and silver prices.
So, whether you’re bullish or bearish on the sector, there are plenty of ways to ride silver wings in 2011.
DISCLOSURE: The author has no current positions in any of the above mentioned securities.
