Please explain shorting & longing as it pertains to silver
GRANDAM
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So if you buy a contract and short it are you betting for the price to go up or down at a future date?
If you long it are you betting the exact opposite?
At any given time can you short or long a contract?
I have never dabbled in the market with contracts
Please help me out here
If you long it are you betting the exact opposite?
At any given time can you short or long a contract?
I have never dabbled in the market with contracts
Please help me out here
GrandAm 
0
Comments
An exception could be if a dealer happens to buy in a bunch of, say silver, that he wants to have in inventory for physical sales, but he does not want to take market risk on it going down before he can sell it. He can sell some contracts short to offset his long physical position. Then he does not care much if it goes up or down. As he sells the product retail, he decreases his paper short position.
<< <i>As a rule, if you go short, you sell something you do not have in the hope that it will go down before you have to fulfill the contract or buy it back.
An exception could be if a dealer happens to buy in a bunch of, say silver, that he wants to have in inventory for physical sales, but he does not want to take market risk on it going down before he can sell it. He can sell some contracts short to offset his long physical position. Then he does not care much if it goes up or down. As he sells the product retail, he decreases his paper short position. >>
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OK, I am confused
If a dealer buys silver to have on hand and as it goes up he sells over the counter and makes money,,,,
As stated above,,, at the same time he sells contracts short to offset his long physical position,,,,,, so buy selling short he is betting that it goes down.
When you sell short when does money change hands? At the sell time or at a future delivery date?
So if it goes up by the future sell date you owe somebody money?
If the dealer sold short and it goes up doesn't that eat up all the profit he made selling over the counter?
You stated "As he sells the product retail, he decreases his paper short position" What does this cost him and if he plays one side against the other I don't see how he comes out ahead?
I am completely lost on this
My Dad use to play in grain markets like this. I remember one winter he made $75,000 in 3 months,,,,,, lost it all by spring
GrandAm
The origin of futures markets was so producers could lock in their price before spending money on production. For example a wheat farmer figures his budget and possible crop and then might sell contracts to offset some of the probable harvest, hopefully locking in a decent profit on that. Same for a silver miner, the mining company can sell contracts to lock in a price on some of their product, at a price where they are sure to make a profit. The other side was often users wanting to guarantee a price for their industrial inputs. For example a bakery could buy wheat futures contracts to lock in their price for their raw material. Or a jewelry maker could buy silver contracts intending on delivery and lock in their price for their input.
The complication is that there are many more contracts than there is actual product. Most of the time the players are happy to settle in cash and there isn't a problem at delivery time. In rare cases, nickel being one of the more recent examples, too many people want physical delivery, so not everyone that wanted delivery could get it and the exchange had to default on the contracts. There are provisions for this in the fine print of the contracts, but it can cause major market disruptions.
Long and short on futures is complicated enough. Derivatives are a step further down the rabbit hole.
/edit to add: to answer one question, yes money changes hands when the contract is bought long or sold short. However, most players use margin and might only put up 10% of the money to control the contract. So $10,000 might control $100,000 worth. Leverage is why so many amateur futures players wash out, and why the percentage profits and losses tend to be huge. A 10% move against a person using 10x leverage, and their account will be liquidated by a forced margin call.
The other question about someone hedging their position. Yes, they make money on one end and lose on the other. Hopefully their margins are decent enough that they can make enough profit to make it worthwhile. For example someone walks into a major bullion dealer with 1000 ounces of gold to sell. The dealer wants to buy at wholesale and sell at retail and might sell that amount in a month or two. So the dealer buys the physical, and also hedges in the futures markets so as to lock in a profit today. Sure if gold moved up, they could have made more, but if gold cratered, they might be out of business with that much exposure. So instead, they offer a buy price low enough that they can offset in the futures market and lock in their prices and profit with no real market risk.
Dealer then sells 5000 ounces short.
One of three things happens:
1) Price of silver goes down. Dealer adjusts his retail price downward with the market, sells the physical silver at a loss. Dealer closes out his short position at a profit, offsetting his losses in the retail market.
2) Price of silver goes up. Dealer adjusts his retail price upward with the market, sells the physical silver at a nice profit. Dealer closes out his short position at a loss, offsetting the excess profit in the retail market.
3) Price of silver stays the same. Dealer keeps his retail price steady, making a "normal" profit selling silver at retail. Dealer closes out his short position at break-even.
In all three scenarios, the dealer makes a "normal" profit as a result of "hedging" the price of the physical silver he purchased.
My Adolph A. Weinman signature
Possibly one is unfolding now.
My Adolph A. Weinman signature
I knew it would happen.
I do not have the kind of money to get involved in that sort of thing.
For me sell a little, buy a little works just fine.
My profits may not be as high but my losses will not either.
I will sleep better at night.
I have been following the story of JPM Chase and HSBC and their manipulation of the silver market since it broke
in March of last year. I has been quite an interesting situation to watch unfold.
Soon as I learned of the details of it started quadrupling my stacking efforts
I remember watching a video where a bank official told the trading commission that it normal
business practice to sell up to 100 oz.'s of paper metal on the market
for every 1 oz. of actual physical metal that they had.
That was great to hear them actually admit it.
I wonder if that guy still has a job??
Short silver means that you are betting the price will go down because you have sold your physical silver or invested in an equity that increases in price as the price of silver, or silver miners, decreases in price. As the good captain pointed out above shorting can also mean you sell something you do not have (by temporarily borrowing it) in the hope that it will go down before you have to fulfill the purchase obligation. Going short in the stock market is how one makes money when the market is going down.
As noted in earlier posts going long or short can be done in the futures market but it can also be more easily done in the "present" market buying or shorting stocks. Being short and selling short can be two entirely differrent animals. To be short, one either gets out of the market, buys an equity that provides inverse returns to what it is tracking (leveraged) or sells something short. To sell short, investors open a margin account, borrow shares from their broker and sell the shares on the market. When the stock price decreases to a satisfactory level, investors cover the short position by buying the shares back (also called "buy to cover"). Their profit is the difference between the price at which they sold the borrowed shares and the price at which they repurchased the same number of shares in the market, plus the transaction costs and any additional fees. The risks associated with selling short may be even greater than those associated with straightforward investing. If the stock price increases instead of decreases, you may end up paying much more to re-buy the shares so that you can return them to your broker than you realized by selling the shares. You may owe interest as well.
In addition, the new age of Electronic Traded Funds (ETFs) has created many new investment vehicles. ETFs are like mutual funds but are bought and sold directly by the investor on the US exchanges. They have symbols just as stocks have. Note that silver (and other commodities) can be shorted and bought and sold as a "stock" using an equity that tracks price such as the ETFs SLV and GLD. Here is a current list of Precious Metal ETFs if you want to go long:
PM long ETFs
"Leveraged" ETFs are also available. These ETFs let you go long or go short on something and allow you to do so in multiples of X1, X2 or X3. When you go short with an ETF you are not borrowing as you would by shorting a normal stock. You purchase the shorting EFT with cash just as you would a normal stock. Using this method limits your downside to only what you have paid for the ETF. Here's a list of currently available leveraged ETFs in the Commodities market which includes PMs:
Commodities leveraged ETFs
Before investing in any ETF I strongly recommend that you go to the home page at either of the two above links and learn about ETFs. They are an ideal and simple way to go long or short on a number of things including indexes. Like any investment, know what you are doing before you do it.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
roadrunner
<< <i>
<< <i>As a rule, if you go short, you sell something you do not have in the hope that it will go down before you have to fulfill the contract or buy it back.
An exception could be if a dealer happens to buy in a bunch of, say silver, that he wants to have in inventory for physical sales, but he does not want to take market risk on it going down before he can sell it. He can sell some contracts short to offset his long physical position. Then he does not care much if it goes up or down. As he sells the product retail, he decreases his paper short position. >>
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OK, I am confused
If a dealer buys silver to have on hand and as it goes up he sells over the counter and makes money,,,,
As stated above,,, at the same time he sells contracts short to offset his long physical position,,,,,, so buy selling short he is betting that it goes down.
When you sell short when does money change hands? At the sell time or at a future delivery date?
So if it goes up by the future sell date you owe somebody money?
If the dealer sold short and it goes up doesn't that eat up all the profit he made selling over the counter?
You stated "As he sells the product retail, he decreases his paper short position" What does this cost him and if he plays one side against the other I don't see how he comes out ahead?
I am completely lost on this
My Dad use to play in grain markets like this. I remember one winter he made $75,000 in 3 months,,,,,, lost it all by spring
GrandAm
There are two ways to make (or lose) money dealing in metals.
A B&M store has to have physical inventory on hand for walk-in sales. It can make money on the spread. Let's say that it buys in a ten ounce silver bar as spot - 50 cents per ounce, and sells it at spot plus $1 per ounce (note--I have no idea what current spreads are... I am retired.) The spread is $1.50 per ounce, which times ten ounces is a $15 gross profit assuming spot is the same when he buys it and when he sells it.
However, spots move up and down. If he buys it basis $33 silver and sells it basis $34 silver he makes an extra $1 per ounce. However, if he buys it basis $33 silver and sells it basis $31 silver, he loses 50 cents an ounce.
Hedging allows him to not have to worry about the silver spot fluctuating. Whether it goes up or down he still makes his $1.50 per ounce spread, minus the fees for the hedge contract.
A dealer generally has to have a very large inventory to make doing this worthwhile, but some people do. I saw in another thread that Tulving had 300,000 ounces of physical silver on hand. You know darn well most of that is hedged.
TD
<< <i>Is there a date on which you have to buy the shares back by, or do you decide when to buy back the shares. How long can you keep your short position open. >>
Shares in theory no . Future and options contracts yes. Settlement date is the third Friday of said month. There are four ways to close out a futures contract.
1)Offset is the transaction of a reversing trade on the exchange. If you are short 20 March soybean futures traded on the Chicago Board of Trade, you can close the position by taking an offsetting long position in 20 March soybean contracts on the same exchange. There will be a final margining at the end of the day, and then the position will be closed.
2) Cash settlement is simply the holding of a cash settled future until expiration. At that time, there is a final margin payment, and the contract expires.
3) Delivery is the holding of a physically settled future until it physically settles according to exchange rules.
4) Exchange for physicals is a form of privately negotiated physical settlement of long and short futures positions held by two parties.
You can always roll over your position into the next month as well.
Please note- Some months there are no contracts for various commodities.
MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
good explanation of the origins of these markets
...and prudent thoughts for the novice
80%?
My Adolph A. Weinman signature
<< <i><< The complication is that there are many more contracts than there is actual product. Most of the time the players are happy to settle in cash and there isn't a problem at delivery time. In rare cases, nickel being one of the more recent examples, too many people want physical delivery, so not everyone that wanted delivery could get it and the exchange had to default on the contracts. There are provisions for this in the fine print of the contracts, but it can cause major market disruptions. >>
Possibly one is unfolding now. >>
Thanks for the link Overdate.
That essay is informative.
"Inspiration exists, but it has to find you working" Pablo Picasso