A Silver Insurance Plan

Includes: GLD, SLV
by: Gary Tanashian

Biiwii’s Approach to the Silver ‘Play’ – Insurance

Excerpted from the May 1st edition of Notes From the Rabbit Hole

Some blog comments to the Rick Ackerman/FOFOA post highlight something I do not often write about in detail; physical metals. Anonymous entities can write all they want about the metals but I, being a real and identifiable human, write things like “see to securing debt-free value whether it be in property, productive enterprise, quality of life and/or monetary metals.”

I have written about personal preparation initiatives like power generation, alternative heating, firearms, a productive ‘other’ business, debt elimination and in a general way, metals as well, with the view that actual metal considerations should be seen to before speculating in gold stocks. As to methods of ownership (ETFs, Bullion Vault, Gold Money, overseas physical storage, domestic physical storage, etc.), most NFTRH readers are educated well enough to know which are viable and which are not.

Preamble aside, I will grudgingly admit to owning one bag of 90% silver ‘junk’ quarters, because this bag, bought years ago as a means to barter with the egg man here in my rural New England town in the event of a post-hyperinflationary meltdown (or melt up, crack up boom or whatever you wish to call it) was nearly sold last week in the urge to take some ridiculous profit. In other words, I got a case of casino mentality. But realizing I had paid enough taxes last year, I (for now) decided to hold the quarters for their original intent, while implementing a plan that would work even better, as follows:

I write about balance all the time, and as part of a balanced approach, I would think that not riding a crashing asset down might be a smart approach (given the NFTRH view that silver is going to eventually crash from some level). Hence, sell some silver; take some profit – you earned it man. No, don’t do it man! There is an alternative way.

Had I sold my bag of silver for Federal Reserve Notes, I would have had a really awesome profit of around $14,000 at which point Uncle Sam would have slapped me on the back and said “nice job kid, now fork over my cut.” So, the little speculator would be left with some funny money (a good chunk of which he would forfeit), the right to brag about a genius play… and be all out of egg money. No thanks.

So I keep the bag and insure it in the form of put options on the SLV ETF. Readers have watched me blow up options in silver in previous attempts to hedge precious metals positions. Well, last week’s epiphany had me firming my resolve to continue doing this going forward, albeit with a higher level of commitment and with a mindset that I am hedging physical silver primarily.

It works like this, if the value the market has assigned my bag were to crash, I would make enough FRN’s on the put options to help mitigate the ‘price’ damage; meanwhile, I would still have my eggs come a post-hyper crack up. The key here is to not think of this as a trade, a profit opportunity or anything else but insurance. Another key is the discipline to continue throwing the expiration dates well out on the horizon perhaps with the expectation that they will expire worthless, or be sold at a loss as new puts are initiated still further out on the time horizon.

Of course, if my view or personal situation changes to the degree that I no longer care what the assigned market value of silver may be, then the process of buying insurance could be terminated at any time. But the way I currently read the silver market, I would like to remain a bag owner while at the same time, avoid becoming a bag holder. So please, if you see bearish silver positions popping up in (my) portfolio (and you will see a new one this week) do not read anything into it other than the writer’s reasoning with regard to the need for insurance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.