Call buyers betting silver will shine

By David Russell,

Shutterstock photo

Silver has been weak for a long time, but yesterday the bulls were jumping in.

The option paper hit in the ProShares Ultra Silver fund, which is double-leveraged to the price of the metal. More than 2,300 March 42 calls traded in a heavy buying pattern for $0.95 and $1 in volume well above the strike's previous open interest of 678 contracts, indicating new activity, according to optionMONSTER's Heat Seeker system.

Long calls lock in the price where investors can buy the fund, so they can generate some nice leverage in the event of a rally. But if the stock stays below the $42 strike price, their entire investment could evaporate in a matter of just three weeks. (See our Education section)

The AGQ rose 1.68 percent to $39.79 as the broader market sold off. The exchange-traded fund is down 18 percent so far this month and last week touched levels it hadn't seen since August.

Total option volume in the fund was twice the daily average in the session, with calls outnumbering puts by a bullish 3-to-1 ratio.

(A version of this post appeared on InsideOptions Pro yesterday.)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: AGQ

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