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Overall, the iShares Silver Trust (ETF) (NYSEARCA:SLV) has had a rough 2013, dropping 34.4% year-to-date. Moreover, the security has underwhelmed the broader S&P 500 Index (SPX) by more than 20 percentage points during the past three months. Still, since bottoming at its multi-year low of $17.75 on June 27, SLV has rebounded 8.6% to trade at $19.28, leading bullish speculators in SLV's options pits on Monday to snatch up the July 20 call, expecting further gains through the rest of the week.
Specifically, 5,499 of these front-month options were traded for a volume-weighted average price (VWAP) of $0.06. The majority went off at the ask price, and open interest added 3,453 positions overnight, suggesting yesterday's speculators were purchasing the calls to open.
In order for this play to be profitable, SLV has to step 4% north to surpass the breakeven price of $20.06 (strike price plus the VWAP) by this Friday's close, when front-month options expire. Currently, delta on the option sits at 0.17, representing a less than 1-in-5 chance of finishing in the money by expiration. Therefore, should SLV fail to make the expected trek, remaining south of the 20 strike, the most yesterday's call buyers risk losing is the initial premium paid.
Overall activity in SLV's options pits has been bullishly skewed during the past two weeks. In fact, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than five SLV calls for every put within this time frame. The resultant 10-day call/put volume ratio of 5.48 ranks higher than all other such readings taken throughout the year, conveying call activity is at an annual high.
Likewise, SLV sports a Schaeffer's put/call open interest ratio (SOIR) of 0.57, with calls nearly doubling puts among options with a shelf-life of three months or less. The ratio ranks in the 40th percentile of its annual range, further indicating short-term speculators are more call-heavy than usual right now.
However, the aforementioned July 20 strike is now home to more than 36,000 calls outstanding, which could translate into an options-related speed bump in the near term. Plus, the ETF's 10-week moving average has descended into the area. This trendline hasn't been surmounted on a weekly closing basis since mid-February, and should reinforce resistance here.