iShares Silver Trust Options (SLV): Unusual Trading Activity
Options in the iShares Silver Trust (SLV) lit up our tracking system yesterday afternoon with huge put selling activity.
The beauty of SLV lies in its simplicity. It offers investors the price performance of spot silver by issuing shares backed by physical silver.
This fund represents a direct investment in the underlying commodity and does not invest in equity securities or futures contracts.
You see, governments have historically been lousy stewards of the value of their currencies, and a precious-metals position can help hedge a portfolio against such losses.
In addition, investors can also use SLV as a vehicle to speculate on silver prices.
So, SLV rose 2% percent to $27.78 in early afternoon trading yesterday. It peaked around $36 in late February, fell as low as $26 in June, and has been working its way higher since then. The fund has been consolidating above its 50-day moving average in the last two weeks, which could prompt some chart watchers to expect a rally.
In fact, a few option traders are betting on one.
As we moved into afternoon trading yesterday, our radar picked up the sale of three large blocks of SLV put contracts.
The sales centered around the SLV September $27 strike for $0.63, the September $26 strike for $0.31, and the September $25.50 strike for an average price of $0.21. Together all three strikes traded more than 5,000 contracts.
The strategy behind these trades is fairly simple. These traders are happy to accept income now in return for betting that the recent SLV lows will hold.
So, how is SLV constructed?
Unlike most ETFs, this fund does not track an index.
Instead, the fund holds silver bullion, which it stores at the London branch of JPMorgan Chase. SLV’s price reflects the market price of one ounce of silver, less the accumulated expenses of the fund.
Now there are two major benefits of owning SLV…
First, the fund offers direct exposure to silver prices. In fact, SLV is the next best thing to owning silver coins.
And second, silver prices are not highly correlated with stocks, so the ETF can add diversification to a portfolio.
Bottom line…
SLV is likely to head higher as investors continue to worry about inflation and the potential for a currency collapse. So it’s doubtful we’ll see a reversal in SLV anytime soon.
We’ll see how this trade works out… but I’m jumping in.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
