By Steven M. Sears
For eons, most investors treated hot stocks the same way. They sold stocks with gains of 100% or more, and they invested the profits in underperforming stocks with a good chance of advancing.
But financial markets have a new attitude, exemplified by innovations like prediction markets and zero-dated options: Many people view the markets as a casino. The old ways of thinking are increasingly ignored because they conflict with this gambling mind-set.
Now many participants believe hot stocks get hotter. This has been reinforced by their experience. Retail investors have emerged in the past five years as a powerful force that has disproved investment disciplines like "Buy low and sell high."
The new mantra is, "What is hot can get much hotter -- if enough people will it to be thus on social media." For proof, check out the parabolic growth of meme stocks, which have often benefited from the power of the retail trader.
All these market phenomena are challenging the legitimacy of long-term investing. Why wait to get rich when you might be able to do it overnight?
The "Buy higher and higher" rule applies to many stocks, but silver might be the mascot of the movement. The iShares Silver Trust exchange-traded fund (ticker: SLV) is up 287% over the past year, dwarfing the returns of just about everything else.
It went on to plunge 29% on Friday.
In early January, we suggested investors prepare for the iShares ETF to advance to record highs because precious metals were exhibiting a rare trading phenomenon: price insensitivity. Investors were buying silver regardless of the price, often to offset geopolitical uncertainty.
Our trade returned more than 1,000% in less than four weeks. The position expires on Feb. 20, but we encouraged investors to take profits before then, which has proven prudent given silver's price plunge on Friday. For reasons that are not entirely clear, investors aggressively sold the iShares Silver Trust on news that Kevin Warsh was nominated to be the next chair of the Federal Reserve. Apparently, some worry he may be more hawkish on inflation -- which would strengthen the U.S. dollar and, in turn, put pressure on precious metals.
Let's use this past week's reversal in silver to illustrate how to use options to handle the "Hot stocks get hotter" mind-set -- but in a way that maximizes gains and limits losses. The strategy is a template for trading sizzling stocks that exhibit extreme price volatility.
With the iShares Silver Trust at $75.44, investors could buy the March $80 call option and sell the March $95 call for about $3.30. If the ETF is at $95 at expiration, the call spread is worth a maximum profit of $11.70. Should it expire below $80, the trade fails.
A call spread -- buying one call and selling another with a higher strike price but the same expiration -- limits risk and benefits from an advance. (Calls give buyers the right to purchase an asset at a set time and price.)
Unlike buying an asset outright, the options strategy limits losses to the cost of the spread. By selling one call and buying another, the implied volatility expense of a hot asset is also offset. Spreads limit your profit, but the return with this strategy is often 100% or more, minimizing that downside.
During the past 52 weeks, the iShares Silver Trust has traded from $26.57 to $109.83. The ETF is up 17% this year.
The extreme volatility in the silver trade creates charged market conditions. The market action could easily send silver higher. You can sit back and watch the pyrotechnics, or you can exploit the chaos, ideally with a position that limits losses and tilts toward outsize gains. B
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(END) Dow Jones Newswires
January 30, 2026 21:30 ET (02:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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