During cycles of inflation, nothing (arguably) shines brighter than gold. As Money Morning’s Chris Johnson explained, precious metals act as traditional inflation hedges. Essentially, as the greenback gets devalued, hard assets priced in dollar terms swing higher. Yes, speculators could potentially profit handsomely from the surge. However, the main idea with gold centers on wealth preservation, with wealth expansion being a nice possible bonus.
Earlier, I made the bullish case for the exchange-traded fund SPDR Gold Trust (NYSEARCA:GLD). As the largest and most liquid gold-backed ETF, the GLD effectively tracks the spot price of the yellow metal. It’s a way for investors to benefit from exposure to gold without the cumbersome storage and management. However, for those who want to kick it up a notch, speculators may consider the iShares Silver Trust (NYSEARCA:SLV).
Representing one of the largest and most liquid silver funds, the SLV ETF tracks the price of silver by holding physical silver bullion. Like GLD, the silver-focused fund offers investors a convenient mechanism to gain direct exposure to silver prices without having to store or manage physical silver.
To be sure, gold enjoys universal appeal as a store of value. On the other hand, silver offers monetary value (and thus acts as an inflation hedge) but it also is a key industrial metal. Therefore, the price swings tend to be much more volatile than gold’s price discovery. The SLV ETF isn’t for everyone. Still, for the risk tolerant, it could be an intriguing idea for money earmarked for speculation.
For anyone following the precious metals, they’ll know that over the long run, silver tends to rise higher (on a percentage basis) than gold while the downside also sees higher magnitude of movement. In other words, you take the good with the bad. However, the SLV ETF against a temporal framework actually demonstrates an upward bias.
Using data from the past five years, a position entered at the beginning of the week has a 53.46% chance of rising by the end of it. Over a four-week period, the long odds improve slightly but noticeably to 55.43%. Therefore, if you were to take a blind shot at the SLV ETF, chances are, you’d be profitable.
What’s more, certain dynamics shift the prospects of long-side success. For example, last week, the SLV ETF gained 0.55%. Whenever the fund moves up to 1% in a one-week period, there’s a 61% chance that the subsequent week will see an uptick in value. Over a four-week period, these dynamically calculated odds are still robustly positive at 58.54%.
Traders should acknowledge that the SLV ETF is rapidly approaching the psychologically significant $30 level. In my opinion, the bulls will be target this critical threshold. Also, under dynamic probabilities of the positive scenario, the median four-week return stands at 6.72%, implying an upside target of $31.28.
However, because market makers appear to be undercutting the potential of the silver fund, you can get a great payout with bull call spreads with a $30 short leg strike price. Specifically, I’m looking at the 29/30 bull spread for the options chain expiring March 14. At time of writing, the payout should the SLV ETF reach or exceed $30 at expiration clocks in at nearly 113%.
