Using ProShares UltraShort Silver: ZSL
This is an article about how to use ZSL, the ProShares UltraShort Silver ETF to hedge your silver bullion. An article about Proshares Ultrashort Silver by someone who claims to be a pro-silver author may seem odd at first glance. But, what goes up must come down, and silver is no different. Protect your wealth by hedging your physical silver with UltraShort Silver.
For those that don't know, ZSL is the ticker symbol used to identify the ProShares UltraShort Silver ETF. It used to short, or bet against, silver price action.
As silver was moving down from $48 to $18 what were you doing? Crying? Hoping? Did you stop looking at the price everyday?
What you CAN do during future "corrections" is hedge your physical silver by buying an ETF that shorts silver. With UltraShort Silver, the inevitable ride down will not be that traumatic because it acts inversely to the price of silver.
A Method to Hedge Your Physical Silver with ZSL
Here is a 3 step "laissez-faire" method of using UltraShort Silver to hedge your physical silver.
1. Decide when you want to start hedging your physical silver.
According to ETFTrends.com - "The first and perhaps most important screening process for ETFs is knowing the 200-day moving average of each candidate — and where it stands in relation to it. Trend lines are so key that you should only invest in ETFs trading above their 200-day average."
The 200-day moving average is a good indication that an ETF is in an uptrend. If UltraShort Silver is in an uptrend, silver is not. This is when you want to hedge your physical silver. If UltraShort Silver is above its 200-day moving average it's a signal you may want to start buying some.
2. Decide how much ZSL to buy.
The following calculations do not have to be exact. As a matter of fact, if UltraShort Silver, or any other short-silver ETF, is above the 200-day moving average, buy whatever you want. But, if you want to buy only enough to hedge your physical silver, the following is a nice easy way to calculate approximately how many shares of UltraShort Silver you should buy.
(Silver/USS) * (Silver%/USS%) = Shares of UltraShort Silver to buy
Silver = The value of physical silver you want to hedge
USS = The current Price Per Share of UltraShort Silver
Silver% = The percent of change in silver's price over the chosen time frame
USS% = The percent of change in UltraShort Silver's price per share over the chosen time frame
Protect your wealth, hedge your silver
Here's an example.
Choose your time frame. For the purpose of this equation you want to find the percent change of the price of silver and UltraShort Silver over that time frame. I chose a 6 month time frame. During the first 6 months of 2013 silver went from approximately $29 to $21 and UltraShort Silver went from approximately $82 to $48.
Percent change of the price of silver = (29-21)/29 = 28% (rounded).
Percent change of the price of UltraShort Silver = (82-48)/82 = 42% (rounded).
So in this case, if the percent change in silver is 28%, the percent change in UltraShort Silver is 42%, the price per share of UltraShort Silver is $100 and you want to hedge $10,000 worth of physical silver, you would buy 70 shares of UltraShort Silver.
($10,000/$100) * (30%/42%) = 70.14 shares of UltraShort Silver
3. Decide when to sell UltraShort Silver.
Selling is important... but the decision is easy. When UltraShort Silver drops below its 200-day moving average - sell. While your silver is hedged you won't gain or loose much wealth. So, don't worry too much about timing your exit exactly.
If you are smart, you probably have a core holding of physical silver. It's insurance against monetary and fiscal "irregularities." It's a hedge against inflation. It's even pretty. But, boy is it volatile!
Silver is a VERY volatile metal. Don't take a beating on the big down trends. Hedge your silver with ZSL when necessary. You'll be glad you did.