How long-term trade is playing silver
Chris McKhann | [email protected]
The SLV is up 0.73 percent this morning to $33.17. The exchange-traded fund touched $34.05 on Friday, its highest price since its 52-week peak from February.
Today's option activity is all the way out in January 2015, an expiration that is available only in a few underlying assets. The trader bought 13,000 of the 26 puts for $3.80 and sold 13,000 of the 38 calls for $5.10. The open interest in each strike was fewer than 1,000 at the beginning of the day, indicating that this is a new position.
This could be a hedge, but that seems unlikely given the long-term time frame and how close the calls are to the fund price, as the collar would limit the upside. Instead, it appears to be a trade that is neutral to bearish.
In the latter case, the trader would keep the $1.20 credit if the SLV is between $26 and $38 at that long-term expiration. If it is below $26, he or she would be effectively short the shares. (See our Education section)