The appeal of all asset classes waxes and wanes throughout time. Such is true with stocks, bonds, real estate, precious metals, bitcoin, and any other security you want to throw into the ring. There’s a question that circles the minds of all intelligent investors, and it’s one I suggest you add to your pre-purchase checklist.
“What’s the alternative?”
A query of the inquisitive
When you purchase gold, you are doing so instead of all the alternatives. In other words, the opportunity cost of buying gold is that you are not buying stocks, bonds, real estate, and bitcoin instead. The cost of gold is missing out on the opportunity to deploy your capital elsewhere.
Thus, there is constant competition among all assets for capital. It’s a never-ending beauty contest where the winner varies depending on a multitude of factors. Instead of makeup and physique, savvy investors judge based on interest rate levels, sentiment, technical analysis, and fundamental prowess.
Consider the current status of gold and silver, for instance. They’ve been weighed, measured, and found wanting. Gold bugs argue it shouldn’t be this way. Interest rates are in the basement, money printing is through the roof, and the U.S. dollar is on the verge of breaching significant support.
Usually, such facts would generate a tailwind for precious metals. But with stocks topping off one of the best months in history and seemingly pointing to more gains ahead, investor appetite for the shiny stuff has fallen.
But if you’re a true believer in the long-term bullish thesis for gold and silver, then bargain prices should bring delight, not doubt.
Enter the Boomerang
With this morning’s 3% decline in SLV, the silver ETF has officially fallen 23% from its 2020 peak. That puts it in bear market territory and ushers in all sorts of bad juju associated with eclipsing the -20% threshold.
For those willing to play the long game and view this as a buying opportunity, however, the beautifully named boomerang strategy could be worth a look.
The system consists of systematically selling naked puts and covered calls. In timing the initial entry, it’s probably wise to wait for signs of a bottom – or at least a pivot low forming. At this stage in the selloff, we’ve reached a point where traders can now sell puts below the 200-day moving average for a respectable return.
The idea is doubly appealing if you’re willing to begin adding shares of SLV to your portfolio.
Let me end with a disclaimer. I have no idea how low silver will go. It could drop back to its 2020 low of $10.86 for all I know. Furthermore, selling puts right now is a counter-trend, and thus contrarian trade. You have to be comfortable with that and size accordingly if you’re going to entertain a boomerang.
Read more Options Theory [FREE Content]
Every Thursday our resident options addict, Tyler Craig, will be at the helm to help you demystify derivatives and better understand what truly makes them tick. Options for beginners? Come this way, please. Enlightenment awaits.
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Legal Disclaimer
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.
