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Gold Tanks (and how I’m managing my SLV position)

December 15, 2016



Precious metals are reeling following yesterday’s rate hike. GLD, SLV, and a cohort of miners are down anywhere from 1% to 9%. It’s a day of celebration for bears and a day of mourning for bulls.

While the size of today’s move may come as a shock to you, the direction shouldn’t. Remember, gold and crew have been steeped in downtrends for months now making the path of least resistance decisively lower. As illustrated oh-so-expertly in last week’s commodities report, a strong dollar is gold’s kryptonite. And in case you missed it, Janet Yellen lit a fire under the buck yesterday, and it’s been galloping higher ever since.

So what of those of us with passive exposure to metals via ETFs like GLD and SLV? Are we destined to suffer under the ongoing reign of the mighty dollar?

Probably. But you needn’t take it lying down.

But you needn’t take it lying down, son. Play some defense for heaven’s sake. While protective puts are always a viable option, theta lovers typically traverse the covered call route. That is, sell calls against your shares. One contract for hundred shares owned. Or, if you’re clever (and comfortable with naked calls), sell more.

One of the most enlightening ways to measure the impact of adding short calls to a stock position is via Delta. Delta measures your position’s rate of change given a $1 increase in the underlying. If you have 100 shares of SLV, then your Delta is 100. On the bright side, that means you capture $100 profit for each $1 rise in SLV. But, as we’ve all been reminded of recently, it also means you lose $100 for each $1 fall in SLV.

If you want to reduce your loss then reduce your delta. My method of choice is selling calls. Lower delta, out-of-the-money calls afford less protection while higher delta, in-the-money calls provide more protection.

For example, with SLV at $15.18, we could sell the Jan 15 call for 60 cents against our long stock position. The short call has a delta of -0.58, and by adding it to your stock you would reduce the overall position delta from +100 to +42. For the next $1 drop in SLV, you would only lose $42 instead of $100.

Not bad, eh?

The trade-off with selling higher delta, in-the-money calls is you limit your ability to participate on the upside if the stock recovers. By selling the SLV 15 call, you’re now obligated to sell your shares at $15. Which is a bummer if the silver fund ramps to $16, $17, or beyond between now and Jan expiration.

What? You thought you got something for nothing? Nonsense! The price of protection is capping your upside. Take it or leave it.

Personally, I take it when my focus turns from profit maximization to loss minimization (like now). Rest assured uptrends will eventually take root in gold and silver. For now, don your short calls and hedge away.

One more thing: if you purchased SLV with the intent of holding long-term and are now finding it too painful, that’s a tell-tale sign you have too big of a position.


6 Replies to “Gold Tanks (and how I’m managing my SLV position)”

  1. IMENTEKPERE says:


    So, I have a contingent Buy 15.5 Put on SLV with an entry price at $15.81 (Market Order)…

    On Wed. it closed at $15.93 – Today at open, it had gap down below my entry price to $15.25, and today it closed at $15.18 but, I’m showing -$2.50 on the day.

    Why is that?

  2. HIROABABON says:

    I’m long three precious metal streaming companies. Went long Jun 17 puts on GDX to protect them.

  3. HIROABABON says:

    Sounds like you bought the put at pretty much current price

  4. Rani Bush Rani Bush says:

    Good words of wisdom as always Tyler. I have SLV and am feeling the pain but you have given me hope.


    Thank you Tyler .. as always .. your analysis is great .. and very useful

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