27 January 2010

Interesting Volatility in the Silver Market - Silver Wheaton

Interesting action in Silver Wheaton, SLW, today, one of the stronger and more prominent silver plays in stocks. As spot silver remained weak, down most of day, SLW started climbing off its lows reached around noon ahead of the FOMC announcement.

At one point late in the day around 3 PM SLW was UP almost the same percentage as ZSL, the 2x ultra short silver ETF, which was 1.86% higher! Now that offered some interesting speculation and food for thought. Is there anyone in this market except for daytraders and wiseguys? lol.

At some point I expect the silver market to absolutely explode to the upside because of the severe imbalances in supply and demand being created by the paper manipulation in the futures markets. But perhaps not yet. JPM is holding a heavy short position, and they will play games with it until prohibited from doing so. They certainly will not be forced to take a loss by either the exchange or the regulators.

Still, the divergence was worth noting today, perhaps if only to sell some puts to provide a foothold in this crazy market and hedge some risk to further price fluctuations.

The big swing today looked like either short covering or arbitrage, absent any specific news.

"Silver Wheaton has quickly positioned itself as the largest silver streaming company in the world. The company has entered into seventeen agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver production, at a low fixed cost, from high-quality mines located in politically stable regions."
I obviously hold a position in this stock on the long side. Hedged, I should add, along with any mining and precious metals positions I now hold. I take the hedges off when I think the correction is over, and buy longs very slowly and on daily weakness, as we saw on SLW ahead of the Fed announcement today. I also like to try and 'strip beta' out of stocks like this on an intra-day basis.

I think this is the first time I have ever commented on a specific stock. I ordinarily do not do that, and do not intend to change that habit, but this seemed exceptionally odd price action and I wanted to throw it out there so readers might note it, and even forward any rumours or news or legitimate reason for this kind of countertrend action.