How to short silver

There are several ways you can short silver to capitalize on future price declines.

Yesterday I covered “Three triggers that could push silver over $50 ounce.” I don’t think now’s a safe time to short the metal, but I’m also aware that not everyone agrees with me. If you think silver’s overbought at today’s prices, there are several ways you can short silver to capitalize on price declines:

1) Short silver mining stocks. Because silver’s price per ounce is so much lower than gold’s, silver mining stocks are more volatile than gold mining stocks. Their sensitivity to swings in the silver spot price makes could make you a lot of money in a short amount of time (conversely, it could lose you a lot of money, too). In general, you should avoid shorting silver mining stocks that are profitable. Look for thinly traded, small-cap silver mining stocks that represent exploration-stage companies. If indeed the price of silver does fall, an exploration stock will lose value faster than shares in a company that already has operational mines and some incoming capital. Be aware that shorting shares in a single mining company can be risky – particularly if that specific company gets a buyout offer or announces promising results after drilling on one of its sites.

2) Short silver ETFs or ETNs. The iShares Silver Trust ETF (NYSE:SLV) holds physical silver in vaults around the world. Because SLV is backed by actual silver, it’s one of the most popular silver trading vehicles in the world with an average of more than 22 million shares trading hands everyday. Shorting SLV will eliminate the risk associated with shorting shares in a specific mining company. Other silver ETFs or ETNs could leverage your short position. Among them: Global X Silver Miners ETF (NYSE:SIL), which invests in silver miners rather than the metal itself and ProShares Ultra Silver ETF (Public, NYSE:AGQ), which leverages a bet on silver prices by seeking to return 200 percent of the daily London delivery price for silver.

3) Buy an inverse silver ETF or ETN. The ProShares UltraShort Silver ETF (NYSE:ZSL) specifically tries to move in the opposite direction of the silver price. When you buy shares in ZSL, you’re betting that the price of silver will fall. Because ZSL is an ultrashort (meaning it’s seeking 200 percent of the inverse of the silver price), moves in the stock’s share price can be particularly powerful.

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