Silver is experiencing a sharp increase. Ways to protect against a drop using options.

Silver’s Volatile Journey Through Bull Markets

Silver has certainly made its mark during dramatic bull markets. Back in the 1960s, when the U.S. government stopped fixing silver certificate prices, the value essentially soared by around 100%. However, things took a downturn in the mid-1970s, as inflation surged following Nixon’s decision to abandon the gold standard in 1971, leading to a drop of over 40%. Interestingly, the late 1970s brought a remarkable bull run, where prices jumped from under $4 an ounce to nearly $50. This surge was largely fueled by the Hunt brothers’ attempts to corner the market, though regulatory changes and significant margin calls ultimately led to their bankruptcy.

From that peak, silver plummeted more than 90% by the early 1990s, settling below $4 an ounce. The last day it traded under that mark was September 14, 1993. Yet, by the close of 2001, silver was again in a bear market, hovering around $4.06 per ounce. Astonishingly, it took until April 2011 for silver to reach the Hunt brothers’ January 1980 peak again, only to fall back into a bear market shortly after. Fast forward to last October, and silver finally decisively surpassed that earlier high. It first surpassed $50 in November and has since greatly appreciated, closing last Friday at just under $103.20 per ounce. Currently, silver’s value has risen nearly 480%.

So, it seems silver’s journey over the past six decades has been quite the rollercoaster. The question now is: will this latest bull market continue on its current path? Are we likely to see silver double again, replicate the Hunt brothers’ era, or face another decline? It’s pretty unlikely that we’ll see a repeat of the Hunt-style market manipulation, particularly with focused players evidently less willing to corner supply. If regulators utilize position limits and market oversight, then manipulating prices becomes a daunting task. Even if such mechanisms were in place, previous outcomes, such as bankruptcies, might deter attempts to repeat such strategies.

While prices might theoretically reach around $200 per ounce in today’s terms, replicating the past seems improbable. Any significant price move historically appears to have been a product of intentional and aggressive market manipulation. Perhaps a specific set of circumstances would need to align, like ongoing physical shortages, consistent inflows into ETFs or retail, dwindling inventories, along with macro catalysts that draw in margin buyers to outlast profit-taking—all without margin constraints getting in the way. Curious minds pondering the longevity of this trend might just sway some traders and investors to rethink their positions.

On a related note, looking at the current price ratio, an ounce of gold is worth approximately 48 ounces of silver, which, while not as steep as historical averages of around 64 ounces, indicates a low point compared to the long-term average. If you’re holding silver or maybe considering something like the ETF SLV, it may be tempting to cash in on these gains. And while there have been plenty of moments to consider selling during this rally, it’s often proved more prudent to hold on.

But here’s the flip side to consider: what if staying the course could actually enhance potential rewards against the risks? Commodity options tend to show a “positive skew,” meaning that upside calls are generally more enthusiastic in terms of implied volatility than downside puts. You could purchase downside puts on SLV that are less than 10% away from the money while generating funds through selling upside calls that are more than 18% out of the money. A specific strategy would be to buy the March 31 $90 strike put and sell the March $120 strike call. This approach allows you to profit on a dip below $90 while sacrificing upside above $120 with the SLV. When combined with a long silver position, this could mimic the behavior of an in-the-money call spread, balancing the risks and potential rewards.