By Justin Spittler, editor, Casey Daily Dispatch
Imagine losing $4 million in the blink of an eye.
It’s painful to even think about. But that’s how much money one trader lost earlier this year by making an all-or-nothing bet against volatility.
He wasn’t alone. Countless traders made similar bets on low volatility, only to get smoked.
If you’re a regular reader, you know what I’m talking about. If not, here’s a rundown…
• Last year was the least volatile year ever for U.S. stocks…
The markets were so calm that many investors were lulled to sleep. They threw caution to the wind. Some people even shorted (bet against) volatility.
You can see why that was such a bad idea in the chart below. It shows the CBOE Volatility Index (VIX), or what most people call the “fear index.” This index measures how volatile investors expect the market to be over the next 30 days.
This chart shows what the VIX has done over the past three years. When this index is high, it means traders expect a lot volatility. When it’s low, it means they’re less fearful. An extremely low reading can even mean that traders are complacent.
You can see that the VIX was in a clear downtrend for years…
That’s a long time… but nothing lasts forever.
And as you can see, the VIX skyrocketed in January. This crushed traders who shorted volatility. At the same time, it rewarded traders who took the other side of this bet.
And that’s why I wrote this essay…
• A similar opportunity is staring us in the face right now…
Only this time, it’s in the silver market.
In a minute, I’ll show you how to set yourself up for major gains. But first, let me tell you why this is such a great speculative opportunity.
The chart below shows the CBOE Silver ETF Volatility Index, which you can think of as the VIX for silver. It measures how volatile traders expect the silver market to be going forward.
As you can see, the CBOE Silver ETF Volatility Index has been in steady decline since 2011. Last year was an especially calm year for the silver market.
This is important because, as I showed you earlier, markets are often calmest just before explosive moves.
In other words, silver could be on the cusp of something very big. Now, there’s no way to know if it will “break out” to the upside… or head lower.
But my money is on the former.
There are a couple reasons for this, which I’ll get to in a second. But let me address something important.
• Silver is money…
The word literally means “money” in dozens of languages. And that’s no accident.
It has preserved wealth for centuries. And it’s survived every financial crisis imaginable.
This makes silver an excellent store of value. It’s why we recommend owning it for the long haul.
That said, we’re also speculators here at Casey Research. We love opportunities to make massive gains in short periods of time. We especially like to speculate on resources that other investors hate.
And that’s the case with silver right now…
• Sentiment towards silver is awful…
We know this by looking at the Commitment of Traders (COT) report. This is a report issued by the Commodity Futures Trading Commission. It shows the positions major traders have taken in certain securities and commodities.
In April, the COT report showed a net short position of 40,000 contracts by speculative traders. That’s an all-time high. This means that silver has never been more hated.
Now, I know that might seem like a reason to avoid silver. But you must understand something.
Trades often get crowded like this just before the trend changes. We saw that happen with the VIX earlier this year. In other words, extremely negative sentiment like this can be a contrarian buy signal.
Not only that, all this negative sentiment could turn into buying power if silver starts rising. And that’s because traders don’t own a security when they short it. They borrow it. That said, they must buy that security they’ve shorted when they go to close their position.
In other words, all these people who are shorting silver could soon be forced to buy silver if it rises enough. And that would act like rocket fuel for the price of silver.
• In closing, silver may be on the verge of a massive “short squeeze”…
So consider speculating on silver if you haven’t yet.
You can do this by buying the iShares Silver Trust (SLV), which tracks the price of silver. That makes it an easy way to bet on higher silver prices.
You could also bet on silver miners. These companies are leveraged to the price of silver, which means their shares would soar if silver makes a big move higher.
Just remember that mining stocks are highly volatile, so treat them accordingly. Don’t bet more money than you can afford to lose. Use stop losses. And take profits along the way.
June 13, 2018
P.S. Strategic Investor editor E.B. Tucker just uncovered another reason why silver’s set to rally. This is something you probably haven’t considered, so be sure to check out his brand-new video presentation on it right here.
You’ll also discover how you can access E.B.’s top silver miner to take advantage of this opportunity. Click here to learn more.
Today, high praise for Doug Casey and his new book Totally Incorrect Volume 2:
Justin, thanks so much for holding my copy of Totally Incorrect! Can’t wait to read it! Mr. Casey sounds like a REAL American man—too few of those around now! I am honored to have a “place on his list!” I already feel as if I spent an afternoon with my late father, and now I have more time! Again, thank you for your time and trouble.
Doug’s new book is a must-read around our office. It’s Doug’s most controversial book yet… and you can get it for free. This book is not available anywhere else right now. Learn how to get your copy right here.
If you have any questions or suggestions for the Dispatch, send them to us right here.
In Case You Missed It…
Why is it that some connected Wall Street insiders always seem to be in the right place at the right time just before a stock shoots up?
They’re not lucky… or smart…
Instead, they know something that the rest of us don’t… The man they’re calling the “Billionaire Broker” reveals the truth tomorrow night. Details here.