Silver has been hot for weeks, and yesterday was no different.
Option volume surged in the iShares Silver Trustexchange-traded (ETF) fund early, surpassing 84,000 contracts in the first hour of the session and closing with more than 200,000. Calls dominated the activity and contributed 150,000 of the total.
Traders had been taking short-term positions recently, but yesterday they shifted to October contracts. In particular, they bought the October 33 calls for $0.79 and sold the October 37s for $0.17 to help offset the cost, according to OptionMonster’s tracking system.
That means the traders paid about $0.62 to open the call spread, which will let them collect $4 if the fund rallies to $37 on expiration two weeks from today. Shares of the iShares Silver Trust ETF rose 1.28 percent to $31.67 yesterday and is already up 17 percent in the last month!
Owning calls locks in the price where investors can buy a stock or ETF, while selling calls obligates them to unload shares if they reach a certain level. This can provide major leverage, as yesterday’s spread could earn more than 500 percent if it expands fully.
Total option volume in the fund was more than double its daily average of about 90,000 contracts.
—By CNBC Contributor Pete Najarian
Additional News: Gold and Silver Offer Most Opportunities: Pro
Additional Views: Traders Look for a Quick Move in Silver ETF: Najarian
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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC’s “Fast Money” and co-founder of OptionMonster.com. Najarian is long SLV.
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