ProShares UltraShort Silver – Another Way to Make Money With Silver

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Silver is an interesting precious metal in which you can invest. For many long years, it stayed in a depressed price range of from four to seven dollars per ounce. Since 2001, this trend has radically changed. Silver has run up from its old low a few years ago to nearly fifty dollars per ounce in 2011 and has peaked at just under its prior lifetime high along the way.

The gray metal is a volatile animal though, and while it can advance with speeds that will astonish you, it can also take your breath away at how fast it can retrace. In the past, you may have believed that you could only make money on silver when the prices rose.

These days, you also have the ability to position yourself so that you can make money as silver pulls back from its frequent bull market rallies and long term moves up. One of the best ways that you can expose yourself to temporary declines in silver prices is through the ProShares UltraShort Silver Exchange Traded Fund, or ETF. In the paragraphs that follow, you will learn what this investment is and how you can utilize it to increase your profits on the wild price swings for which silver is justifiably famous.

What is An Exchange Traded Fund?

Exchange traded funds are an investment product that Great Britain’s Barclays Capital made famous especially over the last decade. They are investment vehicles that exhibit characteristics of both a mutual fund and a stock. ETF’s invest in a single commodity, basket of commodities, stocks, or other investments and allow you to obtain ownership of that particular group of holdings for a very low management fee, as no one aggressively manages an ETF like they do a mutual fund or hedge fund.

They trade on the major exchanges such as the NYSE, NASDAQ, AMEX, and the London FTSE like stocks do. This means that you can buy and sell shares in an exchange traded fund with great ease and immediacy, unlike with most mutual funds that require you to wait until the end of a trading day, or like with hedge funds that often require you to give weeks or even months of notice before you can cash out your position. This makes ETF’s the best of all worlds for you small to medium sized investors.

What is the ZSL ProShares UltraShort Silver ETF?

ZSL is the symbol for the ProShares UltraShort Silver Exchange Traded Fund. This ETF attempts to achieve daily investment changes that approximate two times, or two hundred percent, the opposite move in silver bullion prices for the day. This investment’s measurement is based on the London daily settlement in U.S. dollars.

Expenses and fees for the ETF operation are taken out, and this is what causes this ETF, like most ETF’s, to not precisely meet their stated investment objectives. To put it simply, if silver rises by 1%, then the ZSL ETF will decline by 2% more or less. When silver declines by 1%, the ZSL ETF will gain approximately 2% in value.

Why Would You Be Interested in Betting Against the Silver Bull Market?

The biggest reason that you as an investor might have to bet against silver has to do with potential long holdings in silver bullion that you may have built up over the last years. If you were fortunate and wise enough to anticipate silver’s dramatic rise from $6, $8, or even $14 per ounce, then you are still sitting pretty on enormous profits with silver in the $30 something dollars per ounce range.

The danger is that you have watched silver run like a freight train to nearly $50 per ounce and then seemingly fall apart. You might want to protect your investment in silver against additional potential declines over the short term, or to hedge your long positions in silver. This ProShares UltraShort Silver ETF is a good way to do this. This way, if silver does decline in the short term, you can make money on the price decline, while you still keep your long positions in silver.

There are other reasons that you might be interested to take a position that moves opposite the direction of silver as well. ProShares says that these include the ability to make larger gains on silver price movements by the use of this two to one leverage. They also state that you can obtain a significant exposure to silver prices with a smaller upfront cash investment. Finally, this vehicle allows you to lower your silver position exposure for any period of time without the need to sell the actual physical bullion holdings that you might possess.

What Are the Specifics of the ZSL UltraShort Silver ETF?

This ZSL ETF trades on the NYSE, or New York Stock Exchange. ProShares launched this particular ETF. They provide you with the greatest variety and choices of inverse and leveraged Exchange Traded Funds. The ProFunds Group owns ProShares, and they manage it as a part of their over $30 billion in mutual fund and ETF assets.You may wonder how an ETF can hold a negative position in a commodity such as silver. Since the ProShares UltraShort Silver ETF is set to the inverse price of silver, they do not own any silver bullion positions or holdings. Instead, they must acquire and hold leveraged financial instruments whose value comes from the base price of silver.

Such involved financial instruments that ZSL employs to reach these investment objectives include silver forward contracts, silver swap agreements, silver options contracts, and silver futures contracts. All of these instruments basically represent contracts between the ZSL ETF and other parties to buy or sell silver in certain quantities at set prices. They acquire these contracts in such a way that as silver moves in one direction, their positions moves in the opposite direction, and at a rate of two to one versus the change in underlying silver prices.

What is the Limitation of the ProShares UltraShort Silver ETF?

There is a downside to the operations of this ZSL ETF. Because its goal is to double match the inverse of the single day price movements in silver prices, it works well on a single day investment basis. But you should be aware that over a period of days, weeks, or months, the returns on this Exchange Traded Fund can in fact be lower or higher than these double the inverse of silver price movements.This means that you should watch your positions in the ZSL ETF on a daily basis if you decide to use it to speculate on or hedge silver prices.

How Much Money You Can Make with ProShares UltraShort Silver ETF?

It is helpful for you to consider a sample one thousand dollars investment in the ProShares UltraShort Silver ETF. As an example, if silver moved down five percent, then your investment would increase in value by approximately ten percent. Your one thousand dollars would now be worth about $1,100. Silver makes these sized moves more than just occasionally.

Can you think of a smarter way to play a pullback in silver prices than with a double leveraged inverse ETF like the ProShares UltraShort Silver ZSL?

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