Investor Uses ETF Options to Bet on Decline in Silver Prices
An investor bet today that the iShares Silver Trust (SLV) exchange-traded fund will decline, using options with a strike price 17 percent below current levels, while wagering it won’t drop below $25 a share by July.
More than 222,000 puts changed hands on the ETF at 12:30 p.m., with the July $25 bearish contracts the most-active in the U.S. today after more than 100,000 traded at 9:54 a.m. in New York, according to Bloomberg data.
The trade may have been part of a spread with July $30 puts, according to Frederic Ruffy, a senior options strategist at New York-based WhatsTrading.com, and Ophir Gottlieb, head of client services at San Francisco-based Livevol Inc., both providers of options-market analytics.
“The action seems to reflect concerns about a drop in silver,” Ruffy said. “This would be a ratio put spread targeting a move down to $25” by the ETF, which fell 1.6 percent to $36.32 at 12:25 p.m. in New York. The fund has risen 21 percent this year, and hasn’t closed below $30 since Feb. 16.
The price of silver doubled in the past year as investors sought an alternative to a weaker dollar and a hedge against accelerating inflation. The precious metal touched a 31-year high of $49.845 an ounce in New York on April 25. Since then, the price is down 25 percent as the dollar rallied and exchange owner CME Group Inc. raised the cash deposit required for trading. Silver futures for July delivery traded at $37.31 at 12:39 p.m. on the Comex, down 33.2 cents, or 0.9 percent. The ETF is designed to reflect the price of the metal.
A block of 21,000 July $30 puts was traded at 9:52 a.m., and that may have been linked with the largest block of July $25 puts, in a one-by-five spread, Ruffy and Gottlieb said.
“If SLV stays where it is or never gets near the $30 level, the trade still picks up a small win for two cents,” Gottlieb said.
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