Silver Delivery on Futures Contracts

Silver Delivery. With the vast disconnect in price between the silver futures and physical silver, several commentators have been advising buying futures and taking delivery.

However, as obvious as this may appear, if it were an option, why then is there a silver price disconnect in the first place? In today’s electronic world, arbitrage trading opportunities last hours if not minutes at most.

Today, we will look at the facts of this prescribed strategy and see if there is an opportunity for us to take advantage of.

First, we will address buying a mini Silver futures contract, symbol YI, traded on the CBOT. The contract is for 1,000 troy ounces of silver. The December 2008 contract is currently trading at 8.900. This represents a contract value of $8,900.

Several commentators have been recommending small investors buy this futures contract and take delivery. However, according to the exchanges brochure, “only the seller (short position) can initiate the delivery process. The buyer chosen to take delivery is the one who held the buy (long) position for the greatest amount of time.”

This means that if we buy the contract we can’t initiate the delivery process. So, we are basically out of luck trying to take silver delivery with the mini-silver YI futures contract.

Next we will look at the COMEX Silver futures contracts traded in NY. There is a mini Silver contract for 2,500 troy ounces, symbol QI, but this contract is cash settled, so this is not an option for delivery either.

This leads us to our last option, the COMEX full-size Silver contract, symbol SI. The contract is for 5,000 troy ounces of silver and you can take delivery in it. Silver delivery must be made with COMEX approved 1,000 ounce bars. The current silver price for the December 2008 contract is 8.995. This represents a contract value of $44,975.

If you are looking to take delivery in this contract, there are a few important points to consider. First, your account will receive a debit of a $100 delivery fee plus the cost of the full contract value on the date of settlement. The exchange highly recommends you don’t remove the silver from the depository and simply hold the certificate, which the exchange will send to you, usually at no charge.

If you want to remove the silver from the depository, there will be a $25/bar (approximate) charge. The metal then needs to be moved via armored carrier. Due to the different locations where you may wish to ship the metal, we can't estimate a cost for this, but you can contact Brinks for a price quote.

The depository locations for pick-up are in Wilmington, Delaware and several in/around the New York City area. Also, keep in mind once the metal is removed from the depository it must be assayed and placed back in an approved depository in order to be sold back on the COMEX.

Needless to say, this basically eliminates the average investor from taking silver delivery in this contract. For larger investors, the required armored-carrier pick-up may not be an issue.

Check the current silver price.

View the COMEX Silver Futures Rule Book - Silver Delivery is in 112.16