ZSL: Silver Short ETF
by argus613 | February 20, 2013 9:08 pm
i have a small position in ZSL Silver short ETF 2x. In @44 now 54 maybe could go to 75 if silver[1] craters as JPM et al purportedly covers short silver. Larry Edelson[2] believes silver goes to low 20’s or high teens. The launching rubber band is being drawn back. Bob
Endnotes:
- silver: https://www.stockgumshoe.com/tag/silver/
- Larry Edelson: https://www.stockgumshoe.com/tag/larry-edelson/
Source URL: https://www.stockgumshoe.com/2013/02/microblog-zsl-silver-short-etf/
Precious metals have always been the standard hedge against inflation and a weak dollar. I don’t believe silver will see any significant decline until certain events take place that force Obama and the Greenies to get out of the way and allow for U.S. oil reserves to be tapped and an adequate infrastructure to be built. Fracking is a proven technology but some people are still thinking in terms of 20-25 years ago. No, in fact I think as world events unfold we will see silver and gold shoot to the moon temporarily. Oil prices and gasoline will also shoot up. This will be temporary and will force our government to get out of the way and allow the U.S. economy to boom and the dollar to become the envy of the world again. That is when you will see precious metals fall like a rock and investors will abandon their positions en mass. Then your short position will pay off big. As for me. I also own ZSL and plan to load the wagon with more as silver gains in value. I know this is not a popular notion with silver and silver mine investors but I believe I will be proven right in the long run. But if you own ZSL the window will open fast so buy when it’s up and sell on the fall. I think you’ll be one happy investor.
I’m working on the premise that 28.50 was the line in the sand for the intermediate term. Maybe we’ll see 26? Perhaps the fear trade in PM’s is unwinding and the inflation trade has not looked appealing enough to many but there’s always the scarcity trade amongst others. Many thought 2003-2007 were pretty rosy years as the general markets rallied but it hardly stopped gold in particular from rising strongly. The worldwide debt super bubble must deflate somehow or other and the apparent path chosen to deal with this by the major central banks of this world fundamentally support a bullish case for hard assets, especially gold and silver. Devaluation and hence inflation is only inevitable and just a matter of time. Look at Basel III and it’s future reclassification of gold as a Tier 1 asset and accelerating central bank purchases(though still small portion of overall world demand), Where gold goes silver will follow. Whatever happens in the short term, PM’s are definitely a buy for longer time frames IMHO.
ZSL as a 2x short of silver gives great payback in the inflationary monetary supply stock run-up. Ecnomists operate off the same equation and as money supply increases so does inflation and interest rates. We have artificially kept those i rates low by buying back our own treasuries but that can’t last. Up till sequestration, volatilitiy and possible flocking back to silver. Notso good for ZSL. Mid Mar, APR, and part of May stocks continue to run up. Why? Full effects of QE money supply increase are not felt for 18-24 months post infusion. Good time to hold ZSL as folks leave silver for higher traditional stocks. By end May, start of Jun think holding ZSL is like asking for a poke in the eye with a sharp stick. Why? When this 24 story house of cards truly starts to fall folks will flock to PMs and commodities and gold/silver will bolt. When will that be? Anyone’s guess, but I am happy to take the bet with a ZERO ZSL position by JUN. After currency devaluation/inflation and currency finally stabilized would be an truly excellent time to be back into ZSL. PS Inflation is already here, we just change our govt model inputs to result in published “low inflation”, we can then effectively lower entitlement costs by paying those with devalued dollars. Over several years you see your purchasing power tank and you can’t figure out what is going on (if you are on SSN, for example). How much is your 1/2 gallon of ice cream right now compared to 3 yrs ago? Oh, and wait, its not a 1/2 gallon anymore…but theres “NO INFLATION” according to the govt. So we already have inflation, it’s the hyper-inflation that is going to be the real kicker.
The old adage that what goes up must come down has never been more true than with gold and silver. If you are a player, there are instruments to play both sides of the equation and the good part is that you can own them just like stock with defined risk. It is true that real inflation is what it costs to live in the real world but there are other pressures that drive these markets as well. If you look at precious metals the value has risen and fell in all kind of market scenarios over the years. If you like having to stay on top of the markets 24/7 you can pick up small gains frequently on both sides. I’m on the side of buying the short side and being patient. I believe silver will see a huge short term run and then come crashing back to earth . My strategy is to buy more ZSL on the run up. I don’t have to tolerate the aggravation of constant monitoring for a few percent gain and will make a killing in the end. Besides, I sleep well at night knowing that my risk is defined and confident that profits are in my future. Patience is definitely a virtue in this play but stress doesn’t have to be a part of it. TAKE YOUR POSITION AND BE PATIENT.
Wayne may be right, he probably just has more steely nerves than I do.
Here is a good explanation of what can happen if you hold long-term to a 2X, and even worse an inverse 2X.
https://www.tradeking.com/education/etfs/leveraged-and-inverse-etfs
I held MVV into a decline and got burned pretty badly, and I felt this was the most stressful stock in my portfolio. It took forever to recover and I have watched my 2X and 3X stocks far more judiciously since. I do normally like a longer horizon and buy and hold, however, I don’t do this anymore with 2X and 3X stocks.
What is forever? I bought MVV close to Dow 13,400, lots of ups and downs, I held on. I didn’t break even until about Dow 13,900. The daily reallocations/commissions can be a profit gobbler. Ouch! Good luck out there and wishing you every success!
No I don’t have steely nerves. I just have the philosophy that I never invest all of my funds at one time in a market that fluctuates. As with ZSL I ride the highs in investment comfortable that I can take profit if I choose. But, when the investment goes against me I simply look for a spot that I feel comfortable adding to my position, comfortable that it will then take less of a move to get back to even and making it profitable faster. I also never invest in this type of short position stock instrument if I’m not pretty confident that in the long term (1 – 2 years) my strategy will pay off. After all when you invest in a normal company stock, don’t you look that far out before expecting to really profit and ride the pull back in anticipation of the rise in price over that investment period? I believe that you have to use the same strategy with this type of investment and by deciding how much you are willing to risk early on and splitting it into multiple investment points. That takes the sting out of the pull back in the investment price and allows for faster recovery and profit. Think of it as a long term investment that you will add to during pull backs and expect to reap the rewards off of at a later time. That’s how I rest easier at night.
How do we short ZSL?
Hello Bob
ZSL is a 2X bear short silver E.T.F.. It moves inverse to silver and therefore is like shorting the metal with defined risk. The opposite would be a long position like buying the real thing or investing in a futures contract or option. There are bullish E.T.F.s out there but at today’s prices you’d spend a lot of money to enter. Oh I forgot. You could buy mining stocks as well.
Hope that helps.
Since there is time decay involved, someone had suggested shorting the short but bankers probably wouldn’t like that too much!
I’ll probably close out Zsl and by Slv soon. Waiting to see the whites of their eyes. That being said, when the SHTF we might not have easy access to our accounts, internet hacking and such. As Jim Sinclare proposes, by good quality mining stocks and take possession of the shares. Bury some tin cans off the property. Wouldn’t be surprised to see a run on metal detectors either. Such is the humor of our times.
Hi Bob,
I realize that I probably am not saying anything that you don’t already know but maybe someone else will get some benefit from this discussion and make the right decision for their comfort zone. I was just playing around last night and ran across an E.T.F. listing page. I think it was on Bloomberg.com. Anyway, I compared the price of the bears to the bulls in the same sectors and the bulls are still priced at a premium indicating to me that possibly the major investors are still expecting a future run up in precious metals. This is just one indicator that I look at. Also with all the talk of an imminent market collapse I feel they may be right. With all of that said, it’s never a bad idea to have some of the stuff on hand. As for mining stocks. As with all stocks, the volatility is connected to a lot of things. The spot price in the market place, management and productivity/profitability, and the financials, not to mention world events. As I believe there will be a large up tick in price temporarily and a pull back as conditions rapidly change I will hold my ZSL and DZZ positions and buy more as the price of the metals rise and the price of the positions fall. As history will prove, what goes up WILL come down. When that happens, I believe that my positions will pay off big with a defined risk. For anyone who is wondering why I would buy more of a loosing position follow my thinking here. As I buy more shares at a lower price, the market only has to make a small move the other way for my positions to become profitable. As with all investments, you have to have confidence in your strategy and only risk capital that you can afford to take a loss on (the good news is you can define what you are willing to loose and set an auto sell point with your broker). Obviously that’s not the desired outcome but it is called speculation for a reason.
Study the price action and consider writing covered calls on part of your position.
works for me. bot zsl @47 in Feb and when it went to $55 sold the mar 53 at 3.60.
downside protection plus reasonable profit if called away. will let it run to expiration unless option drops to below 0.50, then I usually buy it back.
Does anyone who is familiar with ZSL’s have any experience with “shorting” ZSL’s?
You would essentially be shorting the short and therefore taking advantage of the time decay over a period. Essentially long silver with the added wind of the time decay of ZSL at your back instead of in your face.
Interested in Bob and Wayne’s opinion as this was briefly touched on in the thread.
Hello Linus,
My philosophy/opinion is simple. I look at events, financials, market conditions, and what everyone else is doing. Most small investors in the end play follow the leader and get burned in the end when the big money abandons their positions causing a collapse in share price. I mostly look for a point to make the opposite play and practice patience (wait um out). I believe that what goes up WILL come down as we’ve seen so many times in the past. I’m not saying that there aren’t going to be big gains to be made on the long side but the current entry price in my opinion is overly inflated for my multiple entry style. Bottom line if and when precious metals go up I’ll be happy to buy more positions cheaper and wait for the reversal that always happens. Again. That’s my comfortable philosophy. But how ever you invest. Set goals and comfortable limits. Take your position and be patient enough to let the investment work. In investing as in poker, SCARED MONEY WILL RUN AND ALL TOO OFTEN FOLDS TOO QUICKLY. For that reason I would never invest money that I depend on and never put all of my capital in at one time. Just my opinion.
Wayne,
Agree completely. I use technicals to determine sequential entry points and I am patient. However, the innate nature of ZSL is a short term play with time decay that is quite rapid making a long term hold on ZSL akin to buying puts. i.e. I’d rather have time on my side while I wait. If you buy and hold ZSL and silver bullion rises 10% , ZSL should drop 20% without the time decay. This is not the case. Read the prospectus. In other words, if silver bullion stays at a set price for a 6 month period, the ZSL should not move as well. This is again not the case. ZSL over a 6 month period will drop considerably assuming a net 0 price change in silver.
The real optimal strategy is when silver drops, short ZSL as a play on the rebounding of the price in silver or sell a ZSL call spread at the money with buying out of the money calls to limit margin exposure as a roundabout way of being bullish on silver AND having time on your side. JMHO
As in most markets, if a position goes stagnate for six months the value is apt to drop due to sell pressure. After all, most investors are not happy to see their money just sit there. If I didn’t think there would be a move in some direction I certainly wouldn’t invest in it. And considering decay, I buy more positions as the price falls making recovery and profit quicker on the turn around. I fully expect a wild shift within the foreseeable future. You gotta be in it ahead of the move to make the play. It’s never failed me before and until I get bit, I am very comfortable to keep doing what works. I understand if others don’t like it. It’s hard to sit by and watch your position loose value for most people. That’s the reason most don’t do it. However, you can play the bull side if you have the capital and monitor them both diligently. For this strategy to work, you ride the bull on the way up and take profit near the top and ride the bear side on the way down and take profit near the bottom. This strategy can work well if you feel comfortable that there will be a swing up and then a fairly quick turn around.
Wayne and / or Bob or others,
If you are trading ZSL as a long term position without a comprehensive read of the prospectus (pages 15-21) of the 100 pages or so, and a complete understanding of the volatility of the commodity silver bullion of 38% and the comprehension of contango and backwardation, you are gambling without knowing the rules and you will ultimately lose. I trust that any investor / speculator has such. I am by no means an expert but am gaining some insight from having lost some money on ZSL’s in the past.
i.e. if spot price in silver bullion doesn’t change ZSL’s should lose 38% annually. Nice table in the prospectus.
O.K. I’m growing very tired of this conversation. I do read prospectuses on all investments that I make. I am not so foolish as to let my capital sit just for the sake of sitting idle and watch it back up without a plan. If the spot price of precious metals doesn’t fluctuate for long periods of time, basically the entire world is fiscally stagnate. Sectors of all economies will go flat for periods and that’s when you have to be prudent enough to know when to move on. Linus, I don’t know your investment philosophy or if you hedged you positions with averaging or if you just were filled with panic when your position reversed and jumped emotionally out with a loss. That’s your call. All I know is my philosophy and that it has proven to be successful in the past. I’m sorry that I got into this conversation. My daddy always told me “Boy keep your mouth shut and take care of your own business”. Sorry dad, I forgot. With that I’m out to keep my mouth shut as it were and take care of my own business (the business of investing the way that has bread success for me) and I am confident will continue to. Oh, my daddy also had another saying that holds true. “Opinions are like butt holes. Everybody’s got one so keep yours covered up and no one will get upset about it.” Happy investing all and to all good bye. Oh! before I go. Travis can you tell me how to opt out of receiving updates to this blog on my email?
Wayne,
My apologies to you. I meant no disrespect and was merely engaging in the exchange of dialogue and sharing information in a meaningful way rather simply saying I think that the ZSL will go up or down. Since you are making money and I am not, perhaps I am the one to learn from you. As far as opinions, yes I agree as well. That is what makes a market. For every person who thinks that the stock will go up, another thinks the opposite.
Linus,
Perhaps it is I who should apologize to you. I did not mean to make the case that you were the reason that I am tired of the conversation. As a matter of fact what you said is absolutely correct without applying some strategy to cover yourself. With that said, I apologize if I sounded crass. But my inbox is being filled with comments and one horse can only be beaten to death just so many times so many ways. Again please don’t think that I was angry at you. I’m just ready to move on and clear my inbox for other things.
Best of luck to all and happy profitable investing.
BTW: Linus, I think I do owe you an apology. I just reread my earlier comment and I did sound rather full of contempt. Didn’t I. Please forgive me.
No worries. Good luck with your investments.