SLV - Review of the Silver ETF

SLV – Silver is one of the precious metals that can be used as an investment, as a trading vehicle and as a store of value in case of an economic disaster or as a hedge against inflation.

SLV is an ETF (exchange traded fund). It is backed by silver bullion and SLV can be traded just like a stock. It has high daily volume (several million shares) and is very liquid which means it is very easy to get into and out of positions. It also has liquid options for those that know how to trade options.

SLV is traded on the NYSE (New York Stock Exchange) and is backed by physical silver. As of today, May 25th, 2012 there are 310,714,438.5 ounces of silver in trust and a total of 320,100,000 shares outstanding. There are expenses involved in holding a silver inventory and operating an ETF, so the price of SLV follows the price of silver but is not exactly the same. For example the future’s price of silver on May 25th is $28.38/ounce and SLV’s price is $27.62/ounce.

The economic turmoil over the last few years has made many people very bullish (expecting the price to increase) on precious metals, especially silver. Will the financial problems in Europe result in the failure of the EU or the EURO? The FED has created billions, if not trillions of extra dollars since the financial problems of 2008, will this eventually result in inflation?

If you are concerned about the future, SLV could be used as follows:

Investment – If you believe that the price of silver will go up, then buying the shares would be a reasonable way to take advantage of the price move. SLV does not pay a dividend so the only way to make money is for the price of silver to go up. Even though SLV is backed by physical silver, if there ever was a financial disaster, I don’t believe you could redeem your shares in silver.

Investment with Cash Flow – Again you would have to believe that the price of silver will increase but you may not know when this will happen. So, you would buy the shares of SLV in 100 share increments and then sell a call option (covered call) against your shares. This will generate a monthly income as the price of SLV is moving sideways. One of the disadvantages of selling covered calls is that they do not protect you if the price goes down. Another disadvantage is that if the price silver starts flying up, you will not be able to take advantage of the full price move.

Trading SLV – As with any stock, trading SLV requires a large amount of capital. Without using margin, buying 1,000 shares would require about $27,620. Not everyone has that amount of capital available. One would have to be able to read price charts in order to trade well. SLV does move enough so that if you choose the correct direction you can make some money.

Trading SLV Options – This is how I trade silver. It is necessary to learn how to trade options before getting involved with this type of trading. There are many reputable trainers available. The way I trade is to use fixed risk strategies, this way I always have my risk under control. I always trade with a trading plan.

I hope this short description of SLV was of interest. Please provide your comments and suggestions.

Source by Michael W DiPronio

SLV - Review of the Silver ETF