Disclaimer – this is NOT financial advice. I am trying to show you some research and due diligence I have done over the last 8 months or so to make nice gains on some trades. This is MY research and findings, and I am letting you look over my shoulder on how I am playing this. Please talk to a financial advisor and NOT listen to me. These trades are risky and you can lose all of your money if you do not know what you are doing.
My 2 week profits for my last beat down play have been about $6,000. In my last Palisades Radio interview, I detailed how this “beat down” occurs every month. Some idiot like me found this pattern independently with my own research and observations, so my best guess is there have been people a lot smarter than me doing this for some time making lots of money off of this in the shadows. I cannot even begin how Hedge Funds have been playing this with much greater sums than me making fortunes on this.
For about 6 months, I was playing this for “grocery money” testing my theory, refining it, and profiting roughly about $1,000 a month on average. Some months may have been a weak $400, some may have hit more at $1,500. I was refining my strategy, and the month before the Palisades interview, I stepped up my positions, and made about $3,000. I don’t remember the exact amount. May have been $4,000 but I’ll keep it conservative here. This past month I played this system for about a $6,000 gain in just over a week. I sold out of a lot of these mostly to fund my Fortuna whale hunting project, but the TIMING of the sale was Monday, the 16th. Let me walk you through the elements of the setup:
- Monthly call options are played in the silver futures market. The expiration is the 4th to last trading day of the month, and it cannot fall on a Friday or a holiday. This month, I heard it is 11/25 at 1:30PM.
- The positions are listed on the site, and you can clearly see where the price points are that the banks may attack.
- The banks are selling these call options. The banks are also the price MAKERS as they are able to sell massive quantities of “paper silver” into the markets to drive price directionally. If you think there is no manipulation of price going on, you are clearly either new to this industry or cannot read weekly headlines. This just happened. The week before 3 other banks had to pay $50m.
- Where there are large numbers, the banks seem to try and attack these prices starting about a week or so before options expiration. You see large amounts of paper sold into the market at illiquid times or on news that might not be much of a big deal they use for cover.
- Over the course of the week or so, the price is directionally shaped downwards. I do not buy anything during this time, usually. I have recently bought in a lot on FSM, but price was beat down so much that a lower silver price wouldn’t matter a lot.
- After the options expiration, price starts to recover. It may be the next day if they have to buy back what they sold into the markets, but sometimes it is bullish news that reverses the direction.
- I tend to wait until the ship has changed course and not catch a falling knife
- My preference is to play call options on mid tier miners for 12-18 months out. This allows me to capture the delta of the share price gains and have downside risk mitigated with the time premium. Meaning, if silver price starts to recover and the stock market has an accident, I can hold for months until recovery. I use options rather than playing the shares directly because I can get a lot more shares controlled. Every time I’ve played 3 months calls on GDX I got my ass handed to me, so I prefer the longer term call options to minimize my downside risk. I diversify across many miners because any one of them can have bad news in any given month. AG with tax issues and Mexico, FSM with jurisdiction, PAAS with Peru, etc etc.
Now that we have established HOW this pattern works, this is what I observed over time – this chart is getting crowded – so I will show you how long I’ve been tracking this first and then zoom in.
This is the “beat down” above. Shows the pattern of about a week or so before options every month, you start to see the banks club the silver price like a baby seal.
Then we have the “recovery” every month. I haven’t spent a lot of time updating these charts the last month or two so you at least get the idea.
Here, we zoom into the latest beat down that started the 16th or so. I mostly use this on a close up and not the zoomed out daily.
So I am assuming that Nov 23rd at options expiration will probably not be higher than Friday. I was also able to look at the call options and approximate a $24.00-$24.25 price call. Maybe $24.25-$24.50
Now let’s look at my play board. I am just counting my major plays. I held on to Endeavor and I may add to this position on weakness, as they scored my second highest to WPM.
If you look at the recovery chart, I waited until I started seeing up days. The beat downs sometimes drag out as it has a form of momentum going with it.
Sometimes I jump in right after options if everything seems washed out, but mostly I wait to capture the up move, as I’ve been beaten like a mule sometimes catching the falling knife.
So let’s look at the individual charts at where I had bought and sold.
Wheaton Precious Metals
Let’s zoom out first, so you could see how this stock was going. I was seeing it crushed over months and in a descending triangle.
The bottom was around $36, and it seemed it was in momentum moving up towards the top of this triangle.
Let’s zoom in where I bought and sold.
The buy X is approximated, but the sell X I marked on the chart when I did it. You can also see the RSI at the bottom. I timed WPM with a suspected up move in silver that would last 1-3 weeks. Silver did not disappoint. The share price was up 10% in that time, and what you see is it crossed over the triangle and the RSI was 76. On 11/15, I started to get a little nervous. My rule has the “beat down” is to start around the 16th or so every month, and options were SOONER this month than most due to the holiday. I was up 61% in a week, despite the share price only being up 10%. Using the call options, I had about 6x leverage on that move. Sold. The next day, you see it move up a little, and then snap back down. The RSI is still pretty high for WPM, so I’d be very careful about jumping into this anytime soon on a recovery play.
Usually, I just play silver miners with these, but I liked the charts. We first zoom out and I saw a down trend line with 4 touches.
The 5th touch didn’t happen yet when I bought it, but you can see big picture. Let’s zoom in.
What I saw was it was the 15th and I was getting very close to the down trend trend like. RSI was 72.4 at sale. The price was up over 11%, but the call option profit was 56%. SOLD! Here we had about 5x the leverage on the share price move.
I typically didn’t like them as a silver play because they only have about 27% silver. They are mostly gold and base metals. I took a look at them more closely after they scored highly on my mining evaluations with financial statement reviews. The biggest issue for them is jurisdictional risk with Peru at the moment. Still – I only was going to hold them for a few weeks.
This was not as exciting, as I “only” made 25% in one week playing them. You can see the price move was only 6.13%, but it was also because I got in on them a few days after I got in on Barrick. WPM moved about 1.5x the move, but WPM has a much higher beta to silver than PAAS. PAAS had a multiple here of about 4x to the share price move where WPM had a 6x. This is what happens when silver outperforms gold.
With Endeavor, I never sold. Let’s look at their chart and why.
Because they scored stupid high for me, along with WPM, these guys I may want to accumulate 12-18 month call options on profits of other things and dollar cost average in on them. The green circle I have is a short term target I have for them before I could see a pullback happening. You can see recently the effects of the silver beat down. You’d think I would have sold on the 15th as well, but I’m still up 25% of them without selling. I consider my buy in dirt cheap and will probably sell these in the green, but add more for 18 months out next week or so when the recovery starts. With this miner, I may be always buying 12-18 months out on the recovery, and sell the previous month’s on the beat down. In theory here, I should have sold on the beat down threat on the 15th, then held that money and bought in on maybe 11/26. I probably should have – but I think I got this as a steal.
This month’s recovery
So metals people are all over the place right now. You have Oliver talking about how the gold momentum structure was met, but not quite yet with silver. If you look at the miners – they all seemed to hit some form of resistance and got overstretched with the RSI.
What I’m looking for is some cool off on the miners’ RSIs. When we talk of bull market runs, we can see that the RSI for these things tend to be in the 50-75 range. Meaning, most of you pros out there are probably buying tranches at 50 and selling at 75. And, you are trading that range in between. In these run ups, you may find RSIs below 50 a bargain and those above 75 deeply overbought. So…let’s look at some possible contenders for what I might buy.
Let’s also consider that while the second options expires, you may have banks buying back their shorts – but this week the Fed may be having a new chair named. Hemke suggests this could be Lael Brainard, and he discusses how she is more accommodative than Powell. This COULD be a ST catalyst to push metals up and give the cover for the banks to buy long, as needed. Others like Brady suggest we COULD have problems – despite these numbers being hit, that the COT report has these banks pretty short. One could also consider they are losing control, and with others suggesting BASEL 3 implementation in 6 weeks or less, that metals prices could run like a thoroughbred. Even Jordan Roy-Byrne, who I have gone a few rounds with seems to have perked up a little bit from his negative nelly fortune teller predictions. He had called for “no breakout”, then wrote “bad move” on my Tweet talking about the trades that made me $3,000 last month in about 2 weeks, then most recently had talked about 2022 having a range top of maybe 1900-2000 – now seems to come off as a little giddy with the cup and handle stuff.
It think it’s safe to say no one has a crystal ball. The point of this is not to PREDICT. It’s to OBSERVE PATTERNS and IF the patterns hold, we MAY see profits on these trades. IF BAD THINGS HAPPEN, my trades try to MITIGATE downside risk with having longer term call options where you can either cut bait at 10% loss or hold until price recovers.
Let’s look at AG, NEM, GOLD (Barrick), WPM, PAAS, EXK, and FSM.
First majestic – RSI currently at 46 and could be below 40 by the time of the recovery?
AG has been beaten down lately, and missed on earnings (yet again). The did withhold silver, and with those ounces probably sold during Q4 and higher silver prices selling in to, these guys might be a buy cheap and hold for 2-3 months. However, I might do what I want to do with EXK and sell every month and buy on the recoveries. The problem is, one of these months the horses are going to run and the shorting/recovery thing may no longer happen as no one might want to short into an avalanche.
As of this moment, these banks that are so short on the COT despite all of this real yield talk as negative HAS to be us as a sovereign entity trying to protect the dollar. I can’t see how banks independently think this really is a good idea to do. The other side of this is the shorting you may be seeing is legit hedges on metals they just bought and will sell into the market place. If that’s the case, then it could impede silver prices in the near term. However, if gold starts kicking in the door with Basel 3, dear God silver in coming in behind it with a flame thrower.
I’ve played these guys before on options and have been burned. Share price doesn’t move like you think it would. While a lot of these companies talk about AISC for mining gold at $950 or so, you’d think that is $900 profit per ounce. It doesn’t quite work like that, as Newmont has 300 geologists on staff and you can see that while they have a lot of FCF, the stock doesn’t go bat shit like you’d want it to. In fact, while all others in this sector have a shape of sorts with the down trend and flagging – these guys have been straight channel bound.
They are at the lower end of this channel and the RSI is below $50. Because the share price is at $60 or so, to buy options costs a lot and I don’t seem to get the same bag for the buck. This is why I played Barrick over them. That being said, these guys are near the bottom of the channel with a whiff of $1900 gold coming. They missed on some earnings but have nice cash flows with GDX looking to kick in some doors for them. IF you like them, this might be a really good value play given how low that price is relative to the gold price. Hmmmm. Ok. Now I’m curious. Let’s look at the gold price to NEM. And gold to BARRICK. And newmont to Barrick.
Just looking above, seems to me Barrick is a better value to play options with than NEM.
Looking above, RSI is still pretty high. I think I might skip them this round.
RSI at 54, and if it’s sub-50 on Weds/Fri I might buy some. I’m ass deep in FSM options at the moment and may not be able to do any buying until I get paid Friday.
RSI is at 53, and I may look to PAAS and EXK for any additions this month.
I am REALLY deep in FSM right now at about a $38,000 play. This is far more than I ever put in something, and will be very much watching this closely to manage downside risk. I bought into them a lot on the day they were smashed – right at the end of the day. I have ST options on these for Dec at $800 or so and Jan for $1700 or so, so my “beat down” and “recovery” may actually be selling the Dec options if we get a sharp move up with silver. They just got a 3 month extension with their credit and will be filing legal proceedings this week, so immediate upside/downside risk is more neutral at the moment. I think this takes the “sting” off of the sharp price drop and we might get a 10-20% price recovery over the next 1-2 weeks as the market digests this. It is ALSO possible on a silver recovery people see this as a value play and buy in.
The RSI is hovering around 33 for good reason with the damage of the sell off. But look at how it’s gone sideways since.
To me, it SEEMS like the bottom is in, and even deeply oversold to “true” market value. To ME, I would see a LOT of options being played on them with the upside move which can be incredible versus downside risk which has seemed to already happen. More rumblings out of Peru, but they also got smashed with the Peru news months ago, and the mine affected is Hochschild. Remember above how you saw a 4-6x move with the LT options to the share price move? Look at that price drop. IF the market determines that was perhaps too much of a drop and is oversold, and price recovers from $3.83 to perhaps $4.60, that is perhaps a 21% move. Well, if you buy those LT like I did above and you see a 4-6x move, that is an 80-120% move in 2 weeks.
Now, we picture a scenario where Brainard is named Fed chair, silver hits $30 in the next 2-3 months, and FSM wins their protest as Lindero has stepped up production, and you can see a 3x move in the share price from $3.83. That 3x can make your options plays into lottery tickets. So the silver recovery could play into this…
I’m not going to go too deep into this due to time here but I wanted to look at the 3 main ones I play. Last I looked, GDX and GDX had run up pretty high. I still have a ton of SILJ $17 Jan 2022 calls I’m deeply underwater on so I’d absolutely love for SILJ to take off anytime soon!
When doing these ratios, gold looks slightly overpriced to GDX and GDXJ, and Silver looks slightly overpriced to SILJ. IF we can expect these to run up a bit to get to the other rails, I would thus expect the indexes to continue to outperform the metals.
Conclusion – I’m in deep with FSM and will probably be finding some ways to play some profits into PAAS, AG, and EXK this week or next when a recovery starts. AG has the lowest RSI of them and seems like might have the most ST upside on a silver move. LT I like EXK the best, so I might skip WPM this month and take profits from these trades to then seed WPM next month.