Given my performance this year - which can only be described as horrendous - its been difficult to face reality. Maybe that's why I'm not posting so much anymore...?
Perhaps this is a good time for a belated mid-year review:
I managed to lower the dollar-cost-average of my silver short position by buying the same puts at very cheap prices, but I remain in the red.
I missed out by not sticking to my convictions about the [quantifiable] situation in Europe - my STD puts would be worth > 3x what I paid for them...
I've compounded my predicament by not cutting my losses in my [irrational, unquantifiable] silver position.
I stick to the idea that precious metals are a bubble (or at least one in the making); in an Armageddon scenario, they're useless - I'd rather have bullets and MRE's. But as a trader, I've done a poor job of timing. For an asset class with no cash flow or earnings to measure (which is thus entirely emotional), precious metal prices won't come to reality until they're obviously out of sync with reality. That's where I screwed up on this trade to begin with: up over 3x - even at $32/oz. (a 30% drop in 1 week), I assumed that reality had set in. Not so. Investors are still scared shitless from '07-'08, and a magical commodity that just keeps going and is "undervalued" in proportion to another commodity is just too irresistible to an excess of $$$ that has nowhere else to go.
Where to go from here?
I still have my silver puts. My view is that the next FOMC meeting will further discuss QE measures or Operation Twist-like measure, but will not implement any. They still have their credibility to think about, and talking tough while not looking like they're panicking is likely the base-case scenario.
I think the market's base-case is that they will unveil Operation Twist 2 - or at least something - given economic data and Eurozone fears. Even though this is priced in by the credit markets (see the treasury curve-flattening over the last few weeks - does someone have inside information, like last year with QE2?), I still think the Fed will wait until at least next month to take further measures, if current trends continue.
Therefore:
I'm holding my silver puts looking for a better exit. Hopefully, I'll be able to recoup enough to recover by the end of the year...
