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Trader Sees Long-Term Volatility for iShares Silver Trust (ETF) (SLV)

SLV's April calls and puts are used to initiate a long straddle

by 6/28/2013 11:15 AM
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Call and put volume accelerated on the iShares Silver Trust (ETF) (NYSEARCA:SLV) on Thursday, trading at roughly two times their respective daily volumes. One speculator used options from both sides of the fence to wager on a big move for SLV over the next 10 months, and initiated what appears to be a long straddle in the April series.

Jumping right in... In afternoon trading, paired blocks of April 2014 18.50-strike calls and puts crossed the tape in rapid succession. The positions went off at or near the ask prices of $1.92 and $2.38, respectively, implied volatility ticked higher at both strikes, and open interest soared overnight, confirming buy-to-open activity. Summing it all up, it appears this volatile strategy was initiated for a net debit of $4.30.

With the ETF currently wallowing near $18.76, the expectations are for SLV to either shoot north of $22.80 (strike plus net debit) or sink south of $14.20 (strike minus net debit) by April expiration. In this best-case scenario, gains will be theoretically unlimited to the upside, or quite substantial to the downside. Should SLV remain between these two breakeven rails, the most the trader stands to lose is the initial premium paid.

On the charts, the iShares Silver Trust (ETF) (NYSEARCA:SLV) has been a long-term laggard. In addition to underperforming the broader S&P 500 Index (SPX) by north of 33 percentage points over the past 60 sessions, SLV is staring at a dreary 36.3% year-to-date deficit. This downside has only been exacerbated in recent weeks, with traders flocking out of precious metals at a rapid-fire rate.


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