Precious metals rallied on technical buying today, prompting one trader to place a leveraged bet on silver.
OptionMonster's tracking systems detected the purchase of 1,800 November 60 calls on the ProShares Ultra Silver exchange-traded fund (ETF) for $3.45. An equal number of November 60 puts were written for $4.30, resulting in a net credit of $0.85. Volume exceeded open interest in both strikes.
AGQ shares rose 5.85 percent to $58.09 in early afternoon trading. The fund, which is designed to provide twice the return of silver, spiked after gold and silver held recent gains and failed to break lower despite strength in the U.S. dollar.
"There's a tremendous amount of bullishness toward precious metals," said Jeffrey Christian, an analyst at CPM Group. "Prices rose to levels that triggered speculative buying."
Christian thinks gold may rally to $1,200 by December given today's price action.
Today's options trade combines the leveraging power of options with the leverage built into AQG. By selling in-the-money puts, the investor maximized the credit received to offset the cost of the transaction. He will lose money if AGQ closes below $59.15 on expiration, and earn unlimited profit above $60.
Other investors purchased the November 60 calls for $3.40, betting on a 10 percent pop by expiration. Overall options volume in AGQ is seven times greater than average so far in the session.
Another Opinion on Precious Metals:
CNBC/OptionMonster Trading School:
More Precious Metals ETFs:
iShares Silver Trust
PowerShares DB Silver
iShares COMEX Gold Trust
SPDR Gold Shares
David Russell is a reporter and writer for OptionMonster.