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  • Noel Smith & Leo Capalleja

What To Do About Silver

The largest silver ETF by assets and volume, SLV, has rallied about 28% this year. Assuming you are not already long, what is the best way to enter a new trade?

Speed Matters

We observe that the price ratio of silver to gold is approaching levels unseen since September of 2019. A large chunk of this rally has happened over the last few trading days.

The recent sharp rally has also caused silver volatility to abruptly spike. The interesting aspect of this spike in volatility is that, in contrast to the March volatility spike, the speed of inversion in the volatility term structure has been much faster this time. Due to its high speed, we consider this inversion to be much more temporary than the one we observed in March.

We believe there may be opportunity to profit from this sudden inversion by selling short-term and buying mid-term volatility through call option calendars.

Price of silver as a percentage of the price of gold. Twenty-day implied volatility for SLV and GLD. Contango of the volatility term structures for SLV and GLD.
The first graph shows the price of silver as a percentage of the price of gold. The second graph show the 20-day implied volatility for SLV and GLD. The third graph shows the contango of the volatility term structures for SLV and GLD. Contango is calculated as the percent difference between 6-month implied volatility versus the 20-day implied volatility. Negative contango means the volatility term structure is inverted (backwardated).

Be advised that investments may go up as well as down for any reason, and past performance of a stock is no guarantee of future performance. These ideas are for educational purposes only and are not a recommendation or solicitation. C.A.M. or its employees make no representation as to the timeliness, accuracy or suitability of any content on this website, and cannot be held liable for any irregularity or inaccuracy.

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