Silver has been trying to bottom out, and traders are looking
for a rebound.
optionMONSTER's Heat Seeker monitoring system detected heavy call
volume in the iShares Silver exchange-traded fund, which tracks one
ounce of the precious metal. In particular, activity focused on the
March 20 contracts, which were purchased in heavy volume for $0.64
to $0.68. More than 35,000 changed hands in the session, quadruple
the previous open interest.
Those investors have a
right to buy shares
of the SLV for $20 through expiration two months from now no matter
how high it might climb. They now stand to enjoy significant
leverage while limiting the amount of capital at risk if the fund
drops. (See our
The SLV fell 1.32 percent to $19.42 yesterday. It has lost more
than half its value since April 2011 but has been trying to hold
its ground above $18 in the last seven months. Yesterday's option
activity reflects a belief that a bounce is coming.
One block in the March 20s was paired with 10,000 January 2016 23
calls that were sold for $1.90. The investor collected a credit of
$1.26 on that transaction and stands to profit from a move to $23
but will be naked short calls if the SLV stays below $20 through
March expiration. He or she is probably using the strategy to
repair a losing position in the shares.
Overall option volume was quadruple the daily average in the
session, according to the Heat Seeker. Calls accounted for about 80
percent of the total.
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