Buying Silver Call Options to Profit from a Rise in Silver Prices

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A Silver Price Forecast For 2020 And 2021 *Corona Crash Update*

We see a mildly bullish 2020 with a silver prediction of $22, but a wildly bullish 2021 with a prediction of $28

We consider our annual silver price forecast one of those important forecasts because of our track record in forecasting silver prices. According to our latest silver forecast as well as our gold forecast we predict a new bull market. However, this is not a raging bull market, it is in an early stage in 2020 and might start picking up in 2021. Silver’s price has an upside potential of 30% ($22/oz) in 2020, and an upside potential of 65% ($28/oz) in 2021. That’s against prices at the time of writing around $17.50. The prerequisite is that silver’s COT report shows signs of a bull market, and that Pring’s inflation indicator picks up again. Our 2020 forecast for silver is mildly bullish while our 2021 forecast is wildly bullish with a big spike. We consider this silver price forecast to be one of the must read forecasts of InvestingHaven’s research.

[ Corona Crash Update posted on March 20th 2020 . Please scroll to the bottom to find the most up-to-date silver price chart as well as insights to our forecasts after the Black Thursday and Black Monday crashes in March of 2020.]

As a first general thing we have to point out a very common misconception. Investors tend to think that silver is bullish most of the time. Nothing is further from the truth.

The important misconception is that silver is exceptionally bullish. Most of the time it is bearish or neutral. However, those few times that it turns bullish it does so on steroids. “Once bullish, extremely bullish,” is what characterizes silver.

This is another illustration of Tsaklanos his 1/99 Investing Principles: it is only 1% of the time that silver is wildly bullish. The remaining 99% of the time silver is flat to bearish.

Why This Silver Price Prediction?

What we are really (only) interested in is to catch these major moves in silver. That’s the reason we we will continuously update this silver forecast throughout 2020 and 2021.

We are on the lookout of markets that become a multi bagger in 6 to 9 months time. It is our official mission, formalized at the start of 2020. We call it our Mission 2026, and we even have a target for this: we want to turn $10k into $1M the latest in 2026 by having the best forecasts and associated trades.

Based on the elements in this article we conclude that the likelihood of silver setting some spikes in 2020 and 2021 is high. Timing will be crucial, and precision will be of the highest importance!

We strongly recommend readers to check in often, and follow all our articles and forecasts.

Our Silver Price Forecast for 2020 and 2021

Let’s start with the conclusions of our silver price forecast for 2020 and 2021. Readers who don’t want to understand our underlying forecasting method can ignore the rest of the article.

Silver is a new bull market, period.

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Based on the long term charts which show silver’s dominant patterns we expect this new bull market to continue for some 8 years. That’s the same time the bear market took to complete.

InvestingHaven’s research team is the first one to publish a new rising channel on silver’s price chart. It is the core of our silver predictions for 2020 and 2021. This goes to the core of forecasting: seeing what others cannot see !

In 2020 we will see a slow slope of the rising channel. This may accelerate temporarily in 2021. Bull markets accelerate slowly but surely.

We look at leading indicators in the COT report and inflation indicators to get a sense of the timing of the spikes in 2020 and 2021.

Our Silver Price Forecast for 2020 and 2021

Based on the leading indicators and more importantly the chart setup we see the following silver price forecast for 2020 and 2021.

This is our forecasted silver price for the coming years. Prices reflect silver’s spot price.

Year Silver price forecast Conditions Invalid
2020 Mildly bullish, spike at $22 Dollar soft, gold strong, inflation bottoms Silver falling back to its breakout level at $15
2021 Wildly bullish, spike at $28 Dollar soft, gold strong, inflation bottoms Silver falling back to its breakout level at $15
2022 Neutral N/A N/A

Silver Price Forecast Now Underway (edit: Feb 9th, 2020)

Ed. note: This is paragraph (only) was added on Januardy 3d, 2020, and next edited on February 9th, 2020.

Today, at the start of the 2nd trading day of 2020 we get a confirmation of our bullish silver forecast written many monts ago.

We explained in our gold forecast that gold now confirmed its bullish trend for 2020. Consequently silver follows gold’s path higher!

Some say this is due to fear, other due to political and other tensions.

We say all this is b*****t because markets move higher if and when they are ready to go higher. The news is just the ‘excuse’. Without that news event there would have been another ‘alibi’ to move higher around the same time period.

Similar to gold we see a new bullish pattern is born on silver’s chart: the green channel on below chart. Needless to say this is a very bullish ‘event’.

More interestingly we see that this channel lines up to our projected silver price target of $22 for 2020. Based on the timeline associated with this pattern we expect silver to touch $21 to $22 by April of 2020 after which a cooling off period might follow.

Ed. note: Sign up to our ‘momentum investing’ premium service to known when we believe it is time for gold and/or silver trades. Note that we took a silver trade in 2020 that delivered +80%, one in December/January that delivered 4%, and then got out because market conditions suggested to wait a bit with our next silver trade. However, we are sure a new silver opportunity is underway, so stay tuned with our momentum investing premium service which covers among many other markets also the silver market.

Leading Indicators for our Silver Price Predictions

We have been successful forecasting silver prices in recent years.

To illustrate this we go back to April of 2020 where our silver price forecast was published on MarketWatch: Silver has peaked for the year. We were spot-on. The set of circumstances were not in favor for a strong year in gold nor silver.

In May of 2020 however we were very vocal and convinced about a gold and silver price breakout, and said so in Why gold’s a ‘bargain’ at less than $1,300 an ounce which was published on MarketWatch. Even Barron’s picked up our forecast, and featured it on May 3d: How Gold Could Stage a 20% Rally This Year.

Those silver price predictions are accurate because silver has a number of reliable leading indicators for its future price.

One very reliable leading indicator is the inverted Dollar correlation, though this is a directional indicator. It works on a secular level, not on a day-to-day level. This is an important misconception for many investors!

Similarly, the inflation vs deflation indicator works in a similar way.

One of the most reliable leading indicators for the future price of silver is the silver futures market COT report.

The way to understand this indicator is that it signals a bottom or top when hedge funds have extremely low or high positions. The shape of the subsequent change in net positions is what helps understand whether there is a bull market or bear market in the price of silver.

We look at all those leading indicators, combine it with silver’s chart patterns, and use this as the input for our concrete silver price prediction.

Note that articles like the ones outlining 10 reasons to invest in silver have no added value as leading indicators. It is nice entertainment but be sure that silver price forecasting has nothing to do with inventories, cheap vs expensive arguments, etc. Similarly, whatever hedge fund or financial institution being bullish on silver has no value when it comes to silver price forecasting.

Leading Indicator: Silver COT

When it comes to the silver COT report we look at extreme net positions of non commercials. Every time non commercials are in the 60,000 to 80,000 contracts net long it tends to signal a major peak in silver’s price.

When it comes to the extreme low level of net long contracts by non commercials we see 2 potential scenarios:

  1. Either their positions drop close to zero. This comes with a serious price drop. It tends to happen in a silver bear market.
  2. Either their positions drop but remain significantly positive as the price correction ends. This tends to happen in a silver bull market.

After silver’s major peak in 2020 we saw many drops of silver’s price close to zero for both non commercial and commercial traders. The ultimate test for 2020 and 2021 will now come soon, and we expect silver’s price correction to come with a significantly higher number of contracts for traders.

All data points mentioned above are visible in the center panel of below chart.

Leading Indicator: Silver to Dollar inverted directional correlation

The 2nd leading indicator for silver’s future price is the Dollar inverted correlation.

The next chart shows the Dollar in light grey, but it is inverted. That’s because it is easier to follow the correlation.

In the last 2 decades the silver price chart has tracked the price of the Dollar (inverted) with just 2 exceptions (2020/2020 and 2020). Those exceptions only tended to last 9 months.

That’s exactly why our point is that both markets track each other (inverted) directionally .

Right now we tend to see a wide range in which the Dollar trades. As long as the Dollar remains in this range it will not hinder silver to move higher, every time the other leading indicators are supportive. That’s the way to read this chart and make it insightful for silver’s future price.

Leading Indicator: Silver to Inflation directional correlation

The next leading indicator appears to be highly reliable in forecasting the price of silver.

In particular the inflation / deflation indicator from Pring appears to have a very strong positive correlation with silver. Again, this is a directional indicator, and we look at the secular trends (not the day-to-day or week-to-week trends).

The inflation / deflation indicator in light grey on below chart is in the process of setting a major double bottom. Look at the two green circles at the bottom.

Note how this double bottom did coincide with the test of secular support in the price of silver. Almost at the same time did the inflation indicator and the price of silver bottom.

Whether the recent silver price breakout is forecasting inflation to go up, or vice versa, does not really matter. At least, that’s what we believe.

What matters to us is that both markets bottomed, and that silver already broke out in the meantime. With this it ended its 8 year bear market, almost in the same week after it peaked in 2020 (first week of May)!

The price of silver is in a new bull market, period.

The only question that matters is how fast silver will rise. Given the fact that it is in a new bull market, early stage, it will go up slowly. The acceleration phase follows later.

The Longest Silver Price Chart (50 years)

If we continue the rationale from the previous sections we can see a beautiful setup on the longest chart timeframe. This may feel too classic, and as many silver investors nowadays prefer to look at the silver price on the shorter term charts. But remember the dominant trends are only visible on the longest timeframes so serious investors always have to respect the top down approach when it comes to silver price analysis.

Below is the 50 year silver price chart. This a quarterly (!) chart so it is meant to read the most dominant trends.

We believe this chart contains a wealth of insights. It is especially useful for our silver price forecast for 2020 and 2021 .

Let’s review them one by one:

  1. The recent silver price breakout is meaningful. Hence, we expect this to morph into something powerful, even though it will need some time.
  2. The 8 year decline since the peak in 2020 looks like a mini version of the decline that followed the peak of 1979. We see this giant bottom formation between 1979 and 2020. The pattern in the last 8 years looks like a minified version of it.
  3. Consequently we can expect silver to take another 8 years to peak again at $50, where it will set a triple top. This will clear the way to move higher. That’s certainly not for 2020 and 2021, no matter if some analysts tend to be overly bullish. ‘It ain’t gonna happen’ that fast!
  4. In the last 5 decades investors wanted to be invested in silver only 4 times (green shaded areas)! That’s right, there is a lot of talk about silver’s profit potential. But the upside potential should not be mixed up with the time duration in which it rises. High potential, but most of the time bearish or flat, and only exceptionally bullish. “Once bullish, extremely bullish,” is what characterizes silver.

All that said we don’t expect one of those giant moves to take place in 2020 or 2021.

We have to point out one thing as we talk about only a few really big moves. It is a common pitfall to hit one of those moves, and then fall in love with silver. This is dangerous. As per the unusually successful investor Stan Druckenmiller:

It is not whether you are right or wrong that is important, but how much money you make when you are right and how much you lose when you are wrong.

Don’t argue on silver, but ensure you get the investment right.

We have to zoom in to get some more meaningful insights for price targets in 2020 and 2021. For this we look at the monthly chart on 20 years, see below.

Silver Chart and Price Targets

Let’s now combine the findings of our leading indicators, the observations on silver’s long term chart above (50 years) with the monthly silver chart on 20 years.

Here it becomes interesting.

We are on record forecasting a new rising channel, one that is indicated with the green dotted lines on below chart.

As silver ended its 8 year bear market it started an 8 year bull market, is our long term silver forecast. This will not be 8 straight years of double digit or even triple digit rises. Things will start slowly, only to accelerate later on.

The new rising channel points to $22 in 2020 and $28 in 2021. Note that these are spikes, and prices will retrace after hitting those peaks.

The leading indicators, especially the inflation indicator as well as the COT report in the silver market will determine when those spikes to our price targets will take place.

In 2021 we expect one or two bullish moves, when the COT report shows that the non commercials stop decreasing their net long positions. Similarly, inflation expectations should be on the rise in that same time period. It’s the perfect recipe for a strong move in precious metals, especially in silver.

We keep a close eye on the flipside of this bullish story. Bearish momentum will pick up once silver falls back below $16 in which case it will fall to $14 again. Not likely to happen, but the flipside always has to be considered by investors!

Corona Crash Update on March 22nd, 2020

This paragraph and below charts contain an up-to-date version of the long and short term silver price charts. We wrote this update on March 22nd, 2020, at the depth of the Corona crash.

First the 50 year silver price chart.

The silver quarterly chart now has this huge ugly candle in the first quarter of 2020.

However, silver stopped falling really at support that goes back to 2008, and that’s also resistance in 1982. In essence silver’s 12 USD is the breakout point after the 2 decade long giant reversal. This is a promising thing.

Next is the 7 year chart.

With silver’s recent crash there is clearly damage on this timeframe of silver’s price chart.

However we believe what we read into this is a giant reversal that connects the Dec 2020 sell off with the recent lows. This should have a good outcome even though there is resistance to overcome at 14 USD.

Last but no least the daily chart.

This is a close up that shows how fast this decline happened. The 2 red circles are critical price levels, and they were violated in less than 5 trading days. Never seen, unimaginable, but true.

The 14 USD will act as resistance in the short to medium term, but silver clearly will rise back to 16.50 and ultimately 18.50.

We believe that our 2020 and 2021 silver price forecasts may be delayed with one year.

However, silver investors should keep a close eye on 14.50 as well as 16.50 USD. The pace at which both these 2 levels will be cleared will inform is whether our silver forecasts will be delayed or not.

Best case scenario the 14.50 and 16.50 get cleared fast, and our silver price forecasts are still intact.

Worst case the 14.50 and 16.50 cannot get cleared in 2020, and our silver price forecasts are delayed with one year.

Results of our previous Silver Predictions

As said before we have a track record of forecasting gold and silver spot prices. The table below is based on the forecasts made in prior years, both on our own website in the public domain and even on financial mainstream sites.

This is an overview of our silver price forecasts from last year. We publish these forecasts many months prior to the year that we forecast. Prices reflect silver’s spot price.

Year Our silver forecast Highs Lows Forecast accuracy
2020 Neutral, price target of $15 18.65 14.41 Spot-on
2020 Neutral, no breakdown 17.68 13.91 Spot-on
2020 Bullish with price target of $20-21 19.64 14.30 Spot-on

Silver Predictions by other Analysts

Interestingly, quite some silver price predictions have been published by analysts in the field. Most of them have a similar price target, there is only one from First Majestic Silver’s CEO that looks really unrealistic.

We will update this list of silver price predictions throughout the year!

This is an overview of forecasted silver prices for 2020 by other analysts. We don’t support these forecasts, we just share them to illustrate how other analysts think about a silver price forecast for 2020 and beyond.

Year Analyst Silver price prediction
Silver price forecast 2020 InvestingHaven’s research team Bullish bias, spike to $24. In 2021 spike to $28.
Silver price forecast 2020 Keith Neumeyer, CEO of First Majestic Silver $130
Silver price forecast 2020 Colin Hamilton, Bank Of Montreal $18.60
Silver price forecast 2020 RBC $17.50
Silver price forecast 2020 Degusa $23
Silver price forecast 2020 Gov Capital Below $20
Silver price forecast 2020 EB Tucker, director Metalla Royalty & Streaming $20
Silver price forecast 2020 Johann Wiebe, Thomson Reuters $17.50
Silver price forecast 2020 Goldman Sachs $18
Silver price forecast 2020 Michael Widmer, Bank of America $17.54
Silver price forecast 2020 Commerzbank $18.50
Silver price forecast 2020 Survey of analysts by the LBMA $18.21
Silver price forecast 2020 Bullion By Post $20.44
Silver price forecast 2020 Craig Hemke $22

Silver Forecast Log: Weekly updated throughout 2020

This is a (bi-)weekly log to keep track on our silver forecast. We update this on (bi-)weekly basis throughout 2020 with in a bullet style with highlights of the week/month as it relates to our silver projection for 2020 and going into 2021.

  • First week of January: the silver market is on track, exactly in line with our silver forecast for 2020. We expect more strength in January of 2020. Our projected price of $22 may be met by end of April after which a cool down period might follow.
  • Second week of January: great start of the week for the price of silver.
  • January was a choppy month for silver. It broke out, came down, broke out and came down again.
  • For February 2020 we suggest to stay sidelined. There is no real trend right now so it’s better to wait-and-see.

Detailed Follow Up on our Silver Forecast (free forecasting email newsletter)

We absolutely recommend to subscribe to our free newsletter in order to receive future updates. We publish updates on our silver forecast. But we also do publish other forecasts.

We continuously, throughout the year, publish updates on our annual forecasts. Any revision in our forecast are published in the public domain and appear in our free newsletter. Therefore, the only way to track the pulse of markets and stay tuned with our forecasts is to subscribe to our free newsletter >>

Must-Read 2020 Predictions from InvestingHaven’s Research Team

We absolutely recommend to read the following predictions as they are highly informative and very well researched.

Investing in Silver Using Stock Options: The Basics

Stock options are a form of leverage for advanced investors to boost returns of his or her stock portfolio. In the most basic definition, an option is a contract, the option to buy or sell a certain stock at a predetermined price.

Options are leverage; using leverage either increases investment returns or burns investor’s portfolios. Like options, guns are a form of leverage, if you’re hitting your target great–but you can also blow your foot off.

There are many reasons an investor may use stock options, hedging, lock-in gains, or as speculation. By hedging an investor reduces the risk of losing money during a price decline. Likewise, an investor would use stock options to reduce the risk of losing gains from selling options. And these advanced investors may wish to speculate on a stock price movement, therefore might use stock options to play the market.

Vocabulary of an Options Trader

We’ve already covered some of the vocabulary of options trading, but now we’ll dive in deeper to explain the difference between call and put options, then explain a few simple strategies option traders use to boost gains.

A call option is the right to buy shares at a certain price. Conversely, a put option is the right to sell shares at a certain price. Simply meaning, a call option means you expect the price of shares to rise. Whereas, buying a put option means you expect the price of shares to decline.

The strike price is know as the price which shares may be purchased or sold. This means, if you bought an option with a strike price of $50, you could buy or sell the shares of the option at $50.

But why would anyone want the option to buy or sell at $50? Well what if you had the option to buy the shares at $50, then the price rose to $51, you would’ve made $1 per share. Similarly, what if you had the option to sell the shares at $50 and the price fell to $49, then you could’ve sold the shares at $50 then bought the shares again at$49–a profit of $1 per share.

In both put and call options the purchaser has the option to exercise her purchase, while the option seller has the obligation to respond to the buyers request.

So, How Does This Help My Silver Portfolio?

Well, you know that the FOMC (Federal Open Market Committee) is getting to lower the target interest rate, thus causing a further decline of the U.S. Dollar and increases the rise of inflation. So, you buy a call option now, and when the FOMC lowers rates you get to profit from the price increase of silver mining companies.

Or the opposite situation where you think the FOMC is getting ready to increase the target rate, so you buy put options and profit from the fall in prices of silver mining companies.

Puts, Calls, and Conclusions

Carefully consider using options to invest because of the leveraged nature of options. Options may provide opportunities to increase your portfolio, but options can also burn through your portfolio at break-neck speed.

Also consulting your tax and investment advisers will prove to be a prudent move. Options have different tax effects your tax situation. Before investing in options, it is important to thoroughly understand the potential risks and benefits–options could either help or hurt your portfolio.

Buying a Call Option

Dan Kenyon/Getty Images

Traders buy a call option in the commodities or futures markets if they expect the underlying futures price to move higher.

Buying a call option entitles the buyer of the option the right to purchase the underlying futures contract at the strike price any time before the contract expires. This rarely happens, and there is not much benefit to doing this, so don’t get caught up in the formal definition of buying a call option.

Most traders buy call options because they believe a commodity market is going to move higher and they want to profit from that move. You can also exit the option before it expires—during market hours, of course.

All options have a limited life. They are defined by a specific expiration date by the futures exchange where it trades. You can visit each futures exchange’s website for specific expiration dates of each commodities market.

Finding the Proper Call Options to Buy

You must first decide on your objectives and then find the best option to buy. Things to consider when buying call options include:

  • Duration of time you plan on being in the trade
  • The amount you can allocate to buying a call option
  • The length of a move you expect from the market

Most commodities and futures have a wide range of options in different expiration months and different strike prices that allow you to pick an option that meets your objectives.

Duration of Time You Plan on Being in the Call Option Trade

This will help you determine how much time you need for a call option. If you are expecting a commodity to complete its move higher within two weeks, you will want to buy a commodity with at least two weeks of time remaining on it. Typically, you don’t want to buy an option with six to nine months remaining if you only plan on being in the trade for a couple of weeks, since the options will be more expensive and you will lose some leverage.

One thing to be aware of is that the time premium of options decays more rapidly in the last 30 days.   Therefore, you could be correct in your assumptions about a trade, but the option loses too much time value and you end up with a loss. We suggest that you always buy an option with 30 more days than you expect to be in the trade.

Amount You Can Allocate to Buying a Call Option

Depending on your account size and risk tolerances, some options may be too expensive for you to buy, or they might not be the right options altogether. In the money call, options will be more expensive than out of the money options. Also, the more time remaining on the call options there is, the more they will cost.

Unlike futures contracts, there is a margin when you buy most options. You have to pay the whole option premium up front. Therefore, options in volatile markets like crude oil can cost several thousand dollars. That may not be suitable for all options traders, and you don’t want to make the mistake of buying deep out of the money options just because they are in your price range. Most deep out of the money options will expire worthlessly, and they are considered long shots.

Length of a Move You Expect From the Market

To maximize your leverage and control your risk, you should have an idea of what type of move you expect from the commodity or futures market. The more conservative approach is usually to buy in the money options.

A more aggressive approach is to buy multiple contracts of out of the money options. Your returns will increase with multiple contracts of out-of-the-money options if the market makes a large move higher. It is also riskier as you have a greater chance of losing the entire option premium if the market doesn’t move.

Call Options vs. a Futures Contract

Your losses on buying a call option are limited to the premium you paid for the option plus commissions and any fees. With a futures contract, you have virtually unlimited loss potential.

Call options also do not move as quickly as futures contracts unless they are deep in the money. This allows a commodity trader to ride out many of the ups and downs in the markets that might force a trader to close a futures contract in order to limit risk.

One of the major drawbacks to buying options is the fact that options lose time value every day. Options are a wasting asset. You not only have to be correct regarding the direction of the market but also on the timing of the move.

Break Even Point on Buying Call Options

Strike Price + Option Premium Paid

This formula is used at option expiration considering there is no time value left on the call options. You can obviously sell the options anytime before expiration and there will be time premium remaining unless the options are deep in the money or far out of the money. 

A Stop-Loss Instrument

A call option can also serve as a limited-risk stop-loss instrument for a short position. In volatile markets, it is advisable for traders and investors to use stops against risk positions. A stop is a function of risk-reward, and as the most successful market participants know, you should never risk more than you are looking to make on any investment.

The problem with stops is that sometimes the market can trade to a level that triggers a stop and then reverse. For those with short positions, a long call option serves as stop-loss protection, but it can give you more time than a stop that closes the position when it trades to the risk level. That is because if the option has time left if the market becomes volatile, the call option serves two purposes.

  1. First, the call option will act as price insurance, protecting the short position from additional losses above the strike price.
  2. Second, and perhaps more importantly, the call option allows the opportunity to stay short even if the price moves above the insured level or the strike price.

Markets often rise only to turn around and fall dramatically after the price triggers stop orders. As long as the option still has time until expiration, the call option will keep a market participant in a short position and allow them to survive a volatile period that eventually returns to a downtrend. A short position together with a long call is essentially the same as a long put position, which has limited risk.

Call options are instruments that can be employed to position directly in a market to bet that the price will appreciate or to protect an existing short position from an adverse price move.

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