A Better Way To Trade Gold And Silver
It’s been a rough year for precious metal investors. Both silver and gold have fallen nearly back to their late 2010 levels. In fact, gold’s down nearly 23% year-to-date. And, silver’s been hit even harder… down over 34% for the year.
I’m not going to get into why the metals are selling off. That’s not the focus of this article. Rather, I’d like to talk about a better way to trade gold and silver.
After all, many investors will keep a portion of their portfolio allocated to precious metals despite the recent selloff. Gold in particular is a favorite safe-haven investment across the world.
So – what if you could still invest in gold and silver and outperform most everyone who’s straight up long the metals?
Even better, you can accomplish this task by simply investing in the Credit Suisse Gold Shares Covered Call ETN (GLDI) or the Credit Suisse Silver Shares Covered Call ETN (SLVO). These ETNS seek to outperform traditional long gold and silver ETFs (and the bullion itself) by using covered calls to generate additional premium.
Remember, a covered call is an options strategy where an investor holds a long position in an asset and sells a call option on the same asset so as to generate additional income. It’s a good strategy to use in just about every scenario except when you think the asset is going to go much higher in the near future.
You see, if the asset goes down, the additional income from the call will soften the losses. If the asset stays flat, you’ll collect the premium from the call and not lose any money on the asset itself. And, if the asset appreciates slowly, it’s possible to make money on the call and the asset.
On the other hand, the gains are capped if the asset shoots through the call strike. In that case, the short call will take out the long asset at the strike price.
Back to GLDI and SLVO…
Regarding the gold and silver covered call ETNs, the funds sell calls each month on iShares Gold Trust (GLD) and iShares Silver Trust (SLV) respectively – the most popular gold and silver ETFs. If the short calls make money, the proceeds are paid out in the form of a monthly variable dividend.
Of course, given the nature of the strategy, the dividend is going to vary significantly from month to month. Nevertheless, the payout adds an extra layer of returns not seen in GLD and SLV (or other gold and silver investments).
If you’re looking to get long gold or silver, consider the covered call ETNs. Unless you believe precious metals are going to shoot back to their highs in the next month or so, GLDI and SLVO are the perfect investments for you.
Yours in Profit,
Gordon Lewis
Category: Options Trading
