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Is Silver 'Volkswagening'?

Portfolio Armor's Photo
by Portfolio Armor
Monday, Dec 29, 2025 - 6:04

A bull and bear riding a Volkswagen

Handling A Dangerous Part Of The Silver Trade


Today's guest post, by our friend David Janello, PhD, CFA, addresses that question.

Dr. Janello is the founder of SpreadHunter, and the author of The Nuclear Option: Trading To Win With Options Momentum Strategies.

Before we get to Dr. Janello's post, two quick programming notes. 

  1. We've got two options trades teed up for later today, a bullish bet on one of our current top names (a previous winner for us), and one on a small cap semiconductor substrates name (you'll be hearing more about this company next year). If you want a heads up when we place it, you can subscribe to our trading Substack/occasional email list below. 
  2. If you want to hedge market risk here, you can use the Portfolio Armor website or iPhone app to scan for the optimal ones given your risk tolerance and time frame.

Monday Afternoon Update

In light of today's silver crash, it's worth reading this X article by Alexander Campbell: 

He predicted a big red candle, but remains extremely bullish on silver over the next few years, for reasons he lays out there. 

Also, the trade alert I mentioned above just went out: 

 

Now on to Dr. Janello's post. 

Authored by David Janello, PhD, CFA at Nuclear Options Trading

Is Silver 'Volkswagening'?

David Jensen over at the Jensen’s Economic, Precious Metals, & Markets Newsletter has an excellent post about the current Silver Situation. The premise of the article is that the London Bullion Market Association has been carefully nurturing the mother of all short squeezes and that Silver will soon move from the smooth parabolic move we have seen so far and morph into a Vertical Brick Wall configuration where the slope (and profits) approach infinity. These moves tend to get resolved violently and end either in a spectacular crash, an ugly force majeure event of some sort, or repressive capital controls imposed by our host governments — all in the name of national security, of course. In today’s political environment, government seizure of exchange stockpiles, nationalization of silver mines followed by strict rationing of the remaining supply is not off the table, in both China, the United States and other socialist nations.

Needless to say, these outcomes are not favorable to options traders holding large positions in SLV and other ETFs. The outcome of such a scenario is unknown, which means that it is best to prepare financially and psychologically for a total wipeout of whatever position you may have on, with no warning beforehand or any way to trade your way out once you realize what is happening.

The good news about the Volkswagen Scenario is that it offers the opportunity for immense profits before the final, cataclysmic extinction event arrives.

Based on my experience trading violent short squeezes, here is the best way to handle a Volkswagen Scenario in SLV:

  • Establish a Fixed Number of Long Call Options Contracts. Do not use spreads, you want to capture 100% of the move up and not cap your returns.

  • Establish a Fixed Entry Price

  • Establish a Fixed Exit Price

Using SLV as an example, your default position size for a 100K portfolio might be 10 contracts. Using an entry price of 5.00, this provides a maximum loss of 5% on the entire portfolio (5000-) if one of the Bad Outcomes happens right after you put on the position. Your risk appetite might be different. The key point is, that you must assume that this default quantity and price will be wiped in in the terminating event, whenever that occurs.

The exit price determines when you will liquidate the original position and replace it with the Fixed Number of Contracts at the Entry Price. This will be at a much higher strike than the original entry strike. We really don’t care about which strike, only that the price and quantity remain fixed.

Until the wipeout event, the trading algorithm is simple:

  • Buy the Fixed Number of Options Contracts at the Entry Price

  • Sell the Fixed Number of Options Contracts at the Exit Price

  • Buy the Fixed Number of Options Contracts at the Entry Price

Here is an example from today’s trading session:

  • Sell To Close SLV 58 Strike Call Exp Jan 16 at 12.91

  • Buy To Open SLV 76 Strike Call Exp Feb 20 at 5.10

When the 76 Strike Call hits 10- or more, repeat the process. sell the 76 Strike Call and buy whatever call is trading at around 5.00. I like to use expiration dates two months in the future, which allows a bit more time to adjust if things start to move in either direction.

If SLV rallies another 30-300 points, this creates a series of trades that earn 100% each. Yes, the final trade has a 100% loss but only results in a 5% hit to the overall portfolio. Given the huge profits to be made from a one to three month vicious short squeeze, this is a good risk-reward to take, if you believe a short squeeze is in progress.

In most circumstances, it would be more profitable to increase the position size on each rebalancing trade. This is not the case with short squeezes: it is critical to keep the position size and price constant. This way only 5% of your portfolio gets wiped out. If you increase the position size or hold onto winning positions, the damage can be far greater.

Thanks to Terry S and Andrew G, who taught me the nuances of this position management system as it played out in Short Squeeze during the 2008 Crisis and the 2018 Volatility Event.

Disclaimer : All Content on the Nuclear Option Substack is for Education and Information Purposes only. It is not a solicitation or recommendation to buy or sell any security. Before trading, consult with your Professional Financial Advisor and read the booklet Characteristics and Risks of Standardized Options Contracts, available from the Options Clearing Corporation.

Contributor posts published on Zero Hedge do not necessarily represent the views and opinions of Zero Hedge, and are not selected, edited or screened by Zero Hedge editors.
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