Yesterday, a widely circulated report highlighted a stark warning from former JPMorgan strategist Marko Kolanovic, who predicts that silver could lose roughly half its value from current levels. Kolanovic argues that the recent silver rally which has seen dramatic gains in a short period of time isn’t rooted in fundamental demand but is instead being amplified by speculative trading. He went so far as to describe the surge as driven by “meme traders attempting to take over the market, suggesting that current pricing might not be sustainable.
I don't necessarily disagree with this thought. Silver has climbed sharply amid macro uncertainty and safe haven demand, with notable year-over-year strength. I think there is some substance and actual real fundamentals so I don't expect these price to hold. A 50% decline in silver’s price over the coming year is an bold prediction.
Given that I think we have run too far too fast, I took a defensive stance in my portfolio and bought put options on silver today. Here’s my thinking:
Volatility is high. Silver’s explosive upside over the past year has created trading conditions that almost always mean sharper swings in both directions not a slow grind.
A 10% drop that I'm predicting creates huge leverage in puts.
Buying puts lets me define my maximum downside. I know what I could lose if silver keeps grinding higher, and that helps me size my bet more responsibly as I hace scaled out of my long positions.
If you want to know my exact trade: 2/9 $90 Put @ 2.76 10 Contacts
It’s worth acknowledging that I don't see major weakness ahead. I think there are structural deficits and industrial demand which could support higher prices or at least limit the downside. But, investing is always about probabilities and managing risk. For now, my decision to buy puts is my way of hedging not just reacting emotionally to price swings, but responding to a credible call for significant downside. If silver does indeed correct sharply, the returns from well-timed puts can far outpace a simple short position or staying long through what might be a painful drawdown.