FAQ: Silver Etfs: Multiple Anomalies Detected
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Exchange-traded funds (ETFs) are closed-end investments purchased on an Exchange. They are passively managed funds which mirror the performance of specific indices by tracking the performance of the individual stocks that comprise each index. The major advantages of ETFs are (1) low cost structure, (2) tax efficiency and (3) ability to be traded throughout the day. Yet, an even greater advantage is the ability to buy and sell options on many ETFs, which offers investors the flexibility to execute more sophisticated trading strategies that transcend simple ownership of the ETFs.
Investors, who expect a market rally in an underlying index, buy call options on a corresponding ETF, and acquire the right to buy shares of the ETF at a specific strike price. Call holders are not forced to exercise the options, but if they do, the call writers are obligated to sell shares at the strike price. If the option is not exercised due to the index moving in the opposite direction than the buyer’s expectations, the call holder loses only the premium paid to enter the contract, while the call writer of the option contract gains the premium either way.
Example
We assume that today an investor instructs a broker to buy on December a call option contract on Coca Cola Co. (KO) with a strike price of $51.70. The broker relays these instructions to a trader at the Chicago Board Options Exchange (CBOE). This trader then finds another trader, who wants to sell on December a call contract on Coca Cola Co. (KO) with a strike price of $51.70, and the strike price for an option to buy one share is assumed to be agreed at $5.20. One stock option contract is a contract to buy or sell 100 shares, according to the law in the United States. Therefore, the investor must arrange for $520 to be remitted to the exchange through the broker. The exchange then arranges for this amount to be passed on to the party on the other side of the transaction.
In above example the investor has obtained at a cost of $520 the right to bur 100 Coca Cola Co. (KO) shares for $51.70 each. The party on the other side of the transaction has received $520 and has agreed to sell 100 Coca Cola Co. (KO) shares for $51.70 per share if the investor chooses to exercise the option. If the price of Coca Cola Co. (KO) does not rise above $51.70 before December, the option is not exercised and the investor loses $520. Instead, if the Coca Cola Co. (KO) share price rises to $80 and the option is exercised, the investor buys 100 shares at $51.70 per share when they actually worth $80 per share, thus realizing a gain of $2,830 ($8,000 – 5,170).
By and large, ETFs are profitable if an investor has a long-term horizon because the more the ETF is held, the lower are the costs incurred for the investors since it is not traded on a constant basis. In general, when buying ETFs, investors should set a clear investment horizon and be aware of the cost involved.
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Tags: bullion, butler, etfs, Gold, Index Fund, investment, precious, silver, ted
March 12th, 2010 at 9:53 pm
Only trade in ETFs if you can afford to lose money. Trade in ETF metals and take the profits to directly buy physical precious metals. Also, Morgan Silver Dollars are not 100% silver. In times like this you would want to buy silver at the lowest possible cost per ounce. Gold and silver coins are ok as long as you get them close to spot price. Silver bars are great. 10 and 100 oz bullion bars will be much easier to sell when you need to. FYI – 1000 oz bars are tracked by the IRS.
March 12th, 2010 at 10:03 pm
Let me take a wild guess as to the name of the company that offered that 79 yr old gentleman 50% below market value for his gold coins….
Goldline?
I seem to recall reading they have a knack for targetting lil old ladies to sell overpriced numismatic gold coins. If this is true (and I say if since I don’t know for sure), they are scumbags for stealing from the elderly and vunerable.
March 12th, 2010 at 10:23 pm
You can short the TLT if you want to bet long term interest rates will go up.
Alternatively, you can buy TBT. That is you take a long position on TBT to get the desired effect. TBT is double-short long bond ETF. That is, the return you get on this ETF is the same as that of taking a leveraged short position on long-term bonds.
March 12th, 2010 at 11:05 pm
History establishes a trend and gives cues as to how the market HAD dealt with the company in regard to things that went on. It does not directly bear on the future any more than if the previous coin toss were heads. As in the coin, there is still a 50-50 chance on either heads or tails (although I have had a few land on edge, they eventually fell one way or the other). What the market DID (past tense) does not require the market to do it again.
Still, check for major events and trends. Does your stock tend to go up when the Dow goes up? Or may be it goes the other way (as in folks would rather buy a popular blue chip than buy this company when they are in a buying mood)? Or is there any common correlation (often not)? Is your stock seasonal? My first purchases were for an air conditioning manufacturer, so I bought when it was cheap, Winter, and sold when it was higher, early to mid-Summer. If your company, say, made hot chocolate, it would have a different season than it it, say, sold snow cones. Has your company done a lot of ups and downs but within a fairly steady corridor? Then there are reasons why the market may have established a ceiling and a floor, so ferret out some ideas for those price supports or resistance. Similarly, if you can discern other characteristics that frequently happen, you've just been handed an opportunity to improve your odds–if your coin tosses have never gone more than one side four times in a row, for instance, I would bet for the other side, even if the actual odds for that specific toss were still only 50-50. If your stock tends to peak in January, April, and August, then look at your calendar and time your purchases, or sales, with that in mind, even if you haven't figured out the common causes. History, therefore, gives hints and clues. The market, however, doesn't have to bow to history. In that you are on your own.
Still, there is another important history. It involves comparative advantages. Does your company tend to make more profits than its peers? Does your company tend to make more profits more consistently than its peers? Does your company look like it will continue to perform this way? (If not, then look more closely at its peers) Profitability tends to win out over hope and hype in the long run, so look at its history of doing business, and let the market do whatever it wants.
The first is trading. The latter is investing. What are you really wanting to do?
March 12th, 2010 at 11:28 pm
Yes, that is part of it. Corrolation to the spot price depends on the combination of trade in the futures, options, or stock of companies in or related to the commodity. Also depends on whether it is a ETF or an ETN. The UNG is an ETN and it is being discontinued within the next couple days because it has preformed poorly.
March 13th, 2010 at 7:33 am
etfconnect.com lists all by family. best resource available.
March 13th, 2010 at 2:57 pm
i wonder how lil people like me can get gold to actually store….cause push will come to shove soon. at least that’s how it seems to be heading.
March 14th, 2010 at 6:50 am
I use Scottrade and have been very satisfied. They have a good trading platform and customer service. They are cheaper than Etrade.
I'm not familiar with Zecco, other than looking at their website. But based on your question, you won't need much in the way of service. They could be a no cost way to trade ETFs. I have noticed a number of questions about them which can indicate a customer service problem. Look their site over and see what you think.
March 14th, 2010 at 8:16 am
As of today:
Metal Current 24hr +/-
Gold $995.00 +$15.50
Silver $14.48 +$0.32
Platinum $1090.00 +$20.00
Palladium $213.00 +$1.00
Gold is rocketing toward $1,000! If you can’t afford gold, silver is becoming more valuable, relative to gold, and may be the better investment per the return. Make SURE you get physical metal you can hold in your hand!
=^[.]^=
March 14th, 2010 at 10:19 am
It depends.
If you plan to make a one time deposit, ETFs.
If you're making monthly deposits, funds.
If you're somewhere in between, it depends on the commission you'd pay to your broker to buy the ETF.
One warning, not all brokers let you buy ALL funds for free. Check with your broker first.
March 14th, 2010 at 8:33 pm
Even if you’re poor, buy silver. Sell anything that isn’t real and in your hand, and get something real in your hand.
March 14th, 2010 at 9:02 pm
you can buy it from a local coin shop.
Gold is 970 an oz today.
You may also want to consider Silver, its cheaper and will rise like crazy once this thing unfolds. Best bet is American Eagles, canadian maples and Austrian Phillharmonic coins.
All are .999 pure silver.
Silver bars work too, make sure they are in 1 oz tho, makes for easier trading. If your rich, buy gold and silver!
March 15th, 2010 at 10:40 am
I don't believe Fidelity operates any ETFs. You can buy and sell ETFs through your Fidelity brokerage/retirement account. iShares is one of the biggest ETF providers.
QQQQ looks very interesting and has returns near or better than Contrafund (FCNTX). FCNTX seems to perform better in bear markets, QQQQ a slight bit better in neutral and bull markets.
March 15th, 2010 at 12:54 pm
Another consideration is that ETF's can be bought/sold like stocks. There is no "holding period" as required by many mutual funds that you purchase through a brokerage account or direct from the mutual fund company. So if the ETF sector is heading down (eg. real estate VNQ), you can get out by simply selling your shares.
March 15th, 2010 at 3:20 pm
good advice! thanks. i’ll check it out.
in no way rich, just very worried.
March 15th, 2010 at 6:42 pm
If you want to short the market, then you need to sell individual stocks or widely traded ETFs like DIA or SPY short. Bear ETFs don't actually work the way they are described. Due to technical difficulties in the structure of the ETFs they don't always exactly mirror the market that are supposed to. In the big market drop a year ago, many bear funds experienced liquidity problems and the price of the ETF went down even though the underlying index was going down. This meant that people who predicted that the market was going down lost a lot of money even though they were right.
Moral of the story: if you want to go short, then go short; don't look for gimmicks.
June 7th, 2011 at 6:55 pm
Q : Do any ETFs try and beat the market? A fund that now beat the market by two or 3xs is an actively managed fund. During the past few years there's been a steady expansion in ETFs with no decline.
November 2nd, 2011 at 2:08 pm
Since commodities ETFs are rather like other ETFs in the sense that they trade like stocks, your risk is just restricted to the daily performance of the ETF. As an example, the SPDR Samp,P Retail ETF ( XRT ) holds only retail stocks.
March 11th, 2012 at 3:05 am
I am afraid to say if you have got a managed account at some huge bank or brokerage, you may never hear about some of the most stimulating fresh products. In the last 6 days, the SP five hundred is up slightly under five percent, but UPRO is up better than 15%.