Skip to main content
You have permission to edit this article.
Edit
David England: Leveraged silver or gold?
Column | Eye on the Market

David England: Leveraged silver or gold?

  • Updated
  • 0
{{featured_button_text}}

Last week, I focused on the U.S. dollar, gold and silver and answered your questions on why I currently preferred trading silver. Today, I take it up a notch and analyze potential plays with 2X leveraged, gold and silver Exchange Traded Funds.

First, let’s identify my favorite 2X leveraged, bull and bear silver plays.

AGQ-ProShares Ultra Silver is a Bull 2x leveraged Exchange Traded Fund tracking the spot price of silver. Instead of utilizing swaps, AGQ invests in silver futures and forward contracts and distributes a K-1 form for taxes. The fund is designed to be traded for very short periods, not for buy and hold investing. Options are not traded on AGQ.

ZSL-ProShares Ultra Silver is a Bear 2X leveraged exchange Traded Fund that attempts to deliver 2x the inverse daily return of silver prices. AGQ invests in silver futures and forward contracts and distributes a K-1 form for taxes. The fund is designed to be traded for very short periods, not for buy and hold investing. Options are available on ZSL.

To see the performance of these 2X leveraged ETFs, compared to the performance of Silver, I designed a chart beginning on March 24, to real-time.

EOM 2X Leveraged SILVER ETFs Column.JPG

Here are the key points: While silver (gray area) had an 84% return, AGQ (blue-line) ran more than 2 times silver with a 212% return. The security is designed to run 2X the spot price of silver daily, so how can this happen? Since AGQ ran more than 2X during this time frame, this shows traders decided it was worth paying a premium. The bear 2X ETF, ASL (red line) dropped less than 2 times silver with a -75% return.

How will many traders play silver? Since Silver has run over 84%, many have already locked in profits. Some will gamble, calculating there is more left to the long side. Other traders will wait until the momentum stops then either short silver, buy puts or go long AGQ that goes up when silver drops. Currently, it is trading around the $10 share price.

Here are the action points: If the price of silver continues to rally, this will drive the price of ZSL lower, allowing traders to buy more shares with the same dollar allocation. How would I trade ZSL? I would set an alert when the price goes up through the 15 exponential moving average, or when the Chaikin Money Flow indicator goes from negative (red bars) to positive (green bars). When I receive an alert, I use my Simple Simon system with recalculated moving averages, to signal when it is time to buy or sell. See previous columns for trading instruction details.

Next, my favorite 2X leveraged, bull, and bear gold plays.

UGL-ProShares Ultra Gold is a Bull 2x leveraged Exchange Traded Fund tracking 2X the spot price of gold bullion and distributes a K-1 form for taxes. The fund is designed to be traded for very short periods, not for buy and hold investing. Options are available on UGL.

GLL-ProShares Ultra Gold is a Bear 2X Leveraged Exchange Traded fund, tracking 2X the inverse spot price of gold bullion and distributes a K-1 form for taxes. The fund is designed to be traded for very short periods, not for buy and hold investing. Options are available on GLL.

To see the performance of these 2X leveraged ETFs, compared to the performance of gold, I designed a chart using the same timeframe beginning March 24, to real-time.

EOM 2X Leveraged Gold ETFs.JPG

Here are the key points: While gold (gold area) had a 30% return, UGL (blue-line) ran 2 times more with a 60% return. The bear 2X ETF, GLL (red line) dropped more than 2 times silver with a -42% return.

How will some traders play gold? Since gold only ran over 30% since the middle of March, many will be looking for further upside. Other traders will wait until momentum stops and either short gold, buy puts or go long GLL that goes up in price when gold drops. Currently it is trading around a $30 share price.

Here are the action points: If the price of gold continues to rally, this will drive the price of GLL lower, allowing traders to buy more shares with the same asset dollar allocation. How would I trade GLL? My strategy would be identical to trading ZSL I would set an alert when the price goes up through the 15 exponential moving average, or when the Chaikin Money Flow indicator goes from negative (red bars) to positive (green bars). When I receive an alert, I use my Simple Simon system, with recalculated moving averages, to signal when it is time to buy or sell. See previous columns for trading instructions.

Before trading any of these leveraged securities, study the previous dollar and percent price moves. This can give clues to the parameters algorithm traders are using for buying and selling targets.

If you can’t lock in profits once the price hits your target, then don’t trade. If you don’t set a protective sell stop in case a trade goes against you, then you have no business trading these fast-moving securities. When mentoring traders, I have seen many with a nice profit lose it the next day. Why? Because they were focusing on what they could buy if their profits doubled.

In full disclosure, I hold physical silver rounds.

Coming up, I wrap up this series with my favorite precious metal miners ETFs-don’t miss it!

Plan your work, work your plan, and share your harvest!

David O. England is an investor/trader, financial analyst/educator/lecturer, and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions—send to thetraderseye@gmail.com.

0
0
0
0
0

The business news you need

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Get up-to-the-minute news sent straight to your device.

Topics

News Alerts

Breaking News