You feel shame, you know. And then you get free

MAY 10, 2011 2:31AM

Hi Ho Silver!

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Even the Lone Ranger's trusted steed couldn't deliver the kind of ride that the most reflective metal used in jewelry has over the past few weeks.  Take a look at the chart.

That's the ten day chart for the silver ETF.  As you can see there are three big gaps.  The first, which took place last Monday, was a big gap down.  This was the end of the trend of silver prices climbing steadily.  Then, after a vicious, but controlled decline in the price of silver, there was another gap down.  And then on this Monday, there was a gap up.

Regular readers may recall that we said we were using options to play the trend in silver.  The trend was our friend, and it definitely did bend.  And when it did bend, it bent big time in the other direction.  Then it turned again, and popped back up.

We were able to use these crazy moves in the price of SLV into some profits we just don't expect to be able to repeat ever again.  It's rare that a investment of less than $1,000 will return more than $2,000 in profits, and it's even more rare to be able to do that multiple times trading derivatives based on the same asset.

The most important thing we did when we rode SLV both up and down was to simply react to the trend instead of trying to use logic to explain it.  Just like in any bubble, there was no logic to the ride up, and there was no logic to the sudden turn.  It doesn't matter if it's tulip bulbs in Holland, dot com stocks, or housing.  When bubbles inflate, if you want to take advantage of the ride, stop trying to explain it, and just ride it.  And when the bubble pops, don't try to explain that but get out or ride it the other way.

Emotion has no place in investing.  You need to be ruthless and close out your losing trades quickly instead of hoping things will turn around.  This is especially true if you want to trade options.

For more articles like this, please visit Buy and Hold Plus.

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I have always wanted to play the market. Of course, I've always wanted to have some money too. But I think I would do well in the commodities market, but I will probably never know. Great Post!
Tony, thanks for this look at the recent activity for silver! I didn't have a horse in this silver race so I'm just sitting in the spectator section watching others cash in on.

I remember the time when silver prices went crazy during the Hunt Brothers' cornering of the silver market in '79 and '80 and it ended up costing me some extra money because the silver-based graphic arts films that I used at the time kept getting hit with price increases.
And it's still volatile. I saw the price dropped, so I bought a five $35 May puts. In less than 20 minutes, I've seen it go from a loss of around five bucks to a gain of $90 and back down to a gain of $50. Silver is extremely volatile right now, and if you are willing to watch it, there is money to be made both both on the upside and downside.

BTW, as I typed this, I went from unrealized profits of $54 to unrealized profits of $36 and back up to $46. Craziness.