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Silver Bear Spread

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Submitted By PearlWizard
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Derivatives Markets: Futures and Options

December 9, 2013
Authored by: Kelly Smith
Derivatives Markets: Futures and Options

December 9, 2013
Authored by: Kelly Smith | Silver Bear Put Spread | | An investment strategy to capitalize on a forecasted weakness in the silver spot market |

| Silver Bear Put Spread | | An investment strategy to capitalize on a forecasted weakness in the silver spot market |

Hypothesis – Silver Prices Forecasted to Decline
Based on key macro and micro economic indicators relevant to the silver market, I conclude that spot silver prices will continue to decline in both the short and long term. Several noteworthy firms also support this hypothesis, including UBS, CPM Group, and HSBC Holdings. UBS, for example, lowered their 2014 silver price forecast December 2, 2013, citing that “the new year will likely tempt investors to move out of precious metals into other assets.” They lowered their average price expectations for silver from $25 previously to $20.50/oz. for 2014 and from $24 to $21 in 2015. For the purpose of this assignment, I am assuming the role of a speculator. As such, I will open a Silver Bear Spread with the intention to capture a significant short-term profit – the intended result based on my hypothesis that silver prices will continue to trend lower.

Silver Supply and Demand Economics
Industrial demand growth, driven by technology advances for several decades, appears to have plateaued. In the last decade demand peaked in 2010 and has dropped by nearly 8% over the last two years. There are also no known substantial growth catalysts on the horizon. For example, the photography industry has been one of the largest consumers of silver. However, demand is falling due to digital imaging technology. The rise of information technology has also led to increased silver use in the

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