Eric Sprott: Why Are Investors Buying 50 Times More Physical Silver Than Gold?

For the time being, the silver price is essentially set in the paper market where the daily average trade on the Comex is approximately 300 million ounces. An outrageous number when you compare it to the daily mine production of about 2 million ounces. As Bart Chilton, Commissioner of the Commodity Futures Trading Commission stated on October 26, 2010, “I believe there have been repeated attempts to influence prices in silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act have taken place in the silver market and any such violation of the law in this regard should be prosecuted.” Which brings us back to the phrase “Follow the money.” In our view, it is almost inconceivable that investors would allocate as many dollars to silver as they would to gold, but that is what the data shows. The silver investment market is very small. While the dollar value of gold in the world approaches $9 trillion, the value of silver in the forms of jewelry, coins, bars and silverware is estimated at around $150 billion (5 billion ounces at $30 per ounce). This is a ratio of 60:1 in dollar terms. How long can investors continue to buy silver at the current ratios when the availability for investment is only 3:1? We are surprised that the price of silver has remained at such a depressed level compared to gold. Historically, the price ratio between gold and silver has been 16:1, when both were currencies. Today the ratio is 55:1, so what are the numbers telling us? We believe this is one of those times when smart investors will be well rewarded to “Follow the money.”

 Submitted by Tyler Durden on 12/24/2012 - 16:37

Kelly Formula In Trading

Kelly % = W – [(1 – W) / R]

Where:
W = Winning probability
R = Win/loss ratio

The output is the Kelly percentage, which we examine below.

Putting It to Use
Kelly's system can be put to use by following these simple steps:
Access your last 50-60 trades. You can do this by simply asking your broker, or by checking your recent tax returns (if you claimed all your trades). If you are a more advanced trader with a developed trading system, then you can simply back test the system and take those results. The Kelly Criterion assumes, however, that you trade the same way you traded in the past.
Calculate "W", the winning probability. To do this, divide the number of trades that returned a positive amount by your total number of trades (positive and negative). This number is better as it gets closer to one. Any number above 0.50 is good.
Calculate "R," the win/loss ratio. Do this by dividing the average gain of the positive trades by the average loss of the negative trades. You should have a number greater than 1 if your average gains are greater than your average losses. A result less than one is managable as long as the number of losing trades remains small.
Input these numbers into Kelly's equation: K% = W – [(1 – W) / R].
Record the Kelly % that the equation returns.
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Covered Call Strategies

• Sell 4 weeks/5 weeks covered call for stock when VIX is under 20 , SPX is up trend and no earning report for the stock in contract month.
  
• During first two weeks ( weeks 3 in 5 weeks contract ), buy back the options whn its value drop to 20% of the original premium or less.
• During week 3 ( week 4 of 5 weeks cycle ) of contract period, buy back the options when the ask is 10% or less of the original premium.
• During week 4 ( last week ) of the contract , buy back the option at any price if we feel necessity to sell the underlying equity immediately.
• If at any time during the contract period you have reasons to believe that a stock will drop dramatically in price, buy back the option at any price, sell the stock , and immediately move the cash into another period.
• Rolling down when buy XYZ@38, sell $40 call at $2. One week later price drop to $35 nad option value drop to $.40 ( drop to 20% of value). At the same time the $35 strike is selling at $2.0. Rolling down generate additional $160. If the stock above $35 after expired, income =$200+$160,loss from stock $38-$35 = $300.Profit $60.
• Hit the double strategy :Buy back the options when t meet our 20%/10% requirements, sell the same option strike and month again if stock and option price up.
• Convert dead money to cash profits, consider when there is dark cloud hanging over the stock.There is nothing wrong with selling a stock that is not performing.Closed all the position.
• Exit strategies near expiration Friday, if price at or in the money, you can either rolling out(Rule price In the money ), rolling out and up( Rule price ITM ) or no action.