Investing in physical ownership of silver is often considered a poor investment by common contemporary analysis. It’s price doesn’t move much, it doesn’t yield much profit by any reasonable standards, and the uses it boasts in industrial development, while varied, doesn’t seem to make it a commodity of any significant upward trend.

The reality that places Silver as a tool for hedging against risk more than an actual investment for profit makes SLVO an interesting juxtaposition for individual investors looking for a high-yielding monthly dividend. Annually, the ETN pays out a rough 30% yield at its current price on the market. Given the fact that these dividends come from profits made by covered calls on SLV shares, which SLVO exclusively invests in, its clear that they aren’t consistent. That fact, along with the troubling dichotomy between the high dividend payments and loss of around 70% of the ETN’s price per share since its inception, makes this option seem a relatively risky one. After all, the dividends are nice, but can’t be taken advantage of given the risky nature of holding this ETN for too long a time. Additionally, you aren’t even guaranteed those dividends to be there when you really want them, anyway.

It certainly seems to be the case that a hands off investor might be better off looking elsewhere for an investment with a proven track record. That said, someone with great timing and a mind for reading the market might find themselves enjoying a pretty profit from flirting with SLVO, even if in a scarce manner.

An interesting relationship the ETN has with the market to consider is in its strategy: As aforementioned, it relies on covered calls to produce short-term profits on its long-term positions in SLV. Given the relatively stagnant nature of the price of silver, this can be seen as one of the few ways to conservatively make money in the market. Additionally, the difficult-to-read nature of the price of silver makes the market almost always ripe for profitable contracts to made with covered calls when putting up your stake in the material.

What do I mean by that?

What I mean is that people, regardless of the actual necessity or future of silver, will always be both bearish and bullish on the metal. It really just depends on who you talk to, and when. Given that, there’s a lot of room to make covered calls with positions in SLV, for example, that can often expire as worthless, allowing the seller of the covered call to retain ownership of their position in addition to the fees they collect as provided by each respective contract.

Whether or not this strategy is effective in the long term remains to be seen, at least when organized by the relevant management over at SLVO. But all the same, its worth keeping an eye on the ETN if for no other reason than to learn from their mistakes in playing the silver market.

If they are, indeed, making any mistakes, that is.

GLHF,
-E