Trade Alert Update – (SLV) December 12, 2011

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I have to tell you that I am not feeling the love from my silver position. I hung on faithfully for a month while the (SLV) churned around the 50 day moving average, building a base for a possible upside breakout. It was not to be. With another ?RISK OFF? day on our plate this morning it is clearly time to pull the ripcord on this unloved metal.

Let me tell you what I missed. Silver is still one of the few profitable positions owned by hedge funds, as it is up around 10% year to date. As we plow into the yearend book closing, hedgies have been booking profits in the white metal to offset their abundant losses in other holdings, such as in financials and their short positions in Treasury bonds.

This was offset by panic buying of precious metals in Europe until last week. Progress on a solution of the sovereign debt crisis has cooled demand from this source, taking the knees out from under the entire precious metals space. Gold (GLD) has already broken its two month support with its $50 plunge today. I won?t wait for silver (SLV) to do the same.

On top of this, we only have one month of life left in the January options, and from here on, accelerated time decay kicks in. I?m sure silver will see $37, $42, and even $50 or higher someday, just not in the next five weeks.

So I have little choice but to salvage what little I can from the position, selling my calls to recover the 31 cents that was left at the opening this morning. The loss on this trade amounts to ($1.94 X 100 X 22) = $4,268. This subtracts 4.27% from my performance this year, taking it down to 40.66%.

Whenever I take a loss like this I tell people that this is proof that the track record is real. The fake ones never lose money. It just illustrates the value of using an options strategy during these volatile, unpredictable, and tumultuous times. I never risked more than 5% of my capital. I never lost sleep over the position. I took a 4.27% hit, even though silver fell 12%. I never doubled up on the downside, which the silver permabulls begged me to. Being able to walk away from a position if it turns bad is a great luxury, but it still costs money.

I live to fight another day.

Pulling the Ripcord on Silver