Stocks quoted in this article:
During the past 10 weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than four calls have been bought to open for every put on the iShares Silver Trust (ETF) (NYSEARCA:SLV), resulting in a call/put volume ratio of 4.28 -- just 1 percentage point from an annual peak. Things were no different yesterday, when calls outnumbered puts by a greater than 8-to-1 margin.
One of the most active strikes was SLV's January 2015 22-strike call, where roughly 7,200 contracts changed hands. Nearly half of this activity can be traced to a multi-exchange sweep of 3,437 contracts, which crossed at the ask price, suggesting the calls were purchased. Also, open interest spiked by approximately 4,900 positions overnight -- the most of any SLV strike -- suggesting the bets were freshly minted.
Based on the above, the call buyers are either expecting the iShares Silver Trust (ETF) (NYSEARCA:SLV) to make its way north of the 22 strike -- a level not conquered on an intraday basis since last October -- by January 2015 options expiration, or are using the ETF calls to hedge bearish positions on precious metals issues. With the shares down 1.3% this morning to $18.98, it would take a rally of nearly 16% to bring the contracts into the money. No matter the motives, the traders' risk on the purchased calls is limited to the initial premium paid.