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Wednesday, July 08, 2020

Investment Insights - Silver Spot-Futures Strategy

تم إعداد هذا المنشور من قبل سنشري للاستشارات

Investment Insights - Silver Spot-Futures Strategy
Silver Spot-Futures strategy

Currently, Silver Spot Futures contracts spread is trading at 37 cents (Futures premium to cash). The lowest in the last 1 year has been -16 cents and the highest has been 89 cents on a daily closing basis. As can be seen in the charts, the spread faces strong resistance near $0.40 region and is expected to contract towards the lower end of the range. i.e. Silver cash is expected to outperform Silver September futures.

Silver Spot-Futures strategy chart Silver Spot-Futures strategy chart

Long cash (spot contract) and short futures strategy could be profitable if the spread narrows irrespective of price movement on the upside or downside. On the other hand, it could result in losses, if the spread widens further. If the spread breaks the near-term resistance of 40 cents, it can potentially then test the next resistance of 55 cents in which case the trade would result in a loss of $5,553.

Price
Quantity
Exposure
Silver Cash $18.30 25,000 $457,500
Silver September $18.67 25,000 $466,750
Spread $0.37
Probable Gain if spread reduces to 0 $9,250
Current Holding rate -1.50%
Daily holding charge -$18.80
Total holding charge till expiry (31 Aug 2020) -$1,053
Probable Returns if spread reduces to 0 $8,197.12

Product idea example

Risks & Disclaimer:

At one point in time, the spread had widened to as much as $1.5 and there is always a possibility for the spread to widen even beyond $1.5 resulting in further losses.

There is always a possibility that futures and spot prices might not converge, as that has happened in the past. Considering the high volatility for Silver, $150K should be maintained in the account, as per the above illustration.

Holding rate is currently at 1.5% and can change in the future impacting the trade either negatively or positively.

The testing environment has not considered transaction or any other costs.

Returns may vary if there is any error in executing the trades.

Data Source: Bloomberg

Arun Leslie John
Chief Market Analyst

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