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Why iShares Silver Trust (ETF) (SLV) Speculators May Want a Pullback

iShares Silver Trust (ETF) put selling continues to be the strategy of choice

by 5/13/2014 2:54 PM
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In the iShares Silver Trust's (ETF) (NYSEARCA:SLV) options pits, call volume has more than doubled put volume so far today. Nevertheless, the most active strike is the August 18.50 put, where 6,131 contracts -- roughly half of SLV's total put volume -- have traded. Ninety-one percent of the contracts have changed hands at the bid price, and volume has edged out open interest at the strike, collectively hinting at sell-to-open activity.

With SLV hovering at $18.75, the put writers likely have one of two goals in mind. On one hand, they may be banking on the shares maintaining their perch above the strike price, which is just 1.3% lower than the current perch, through August options expiration. In this case, the traders are trying to avoid assignment -- that is, having to buy the shares for $18.50 apiece, no matter how much they're worth. On the other, the sellers may be waiting to buy the ETF on a dip, and by selling the near-the-money cash-secured puts -- while collecting a credit of $0.72 (the volume-weighted average price) -- they're simply being paid to wait for such a pullback.

Taking a step back, put selling has been a popular strategy in SLV's options pits lately. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have sold to open 22,886 puts, and bought to open a comparatively few 16,421.

Technically speaking, however, taking a neutral-to-bullish posture toward the iShares Silver Trust (ETF) (NYSEARCA:SLV) may not be the wisest move. The shares are off nearly 18% on a year-over-year basis, and have underperformed the broader S&P 500 Index (SPX) by 12 percentage points during the last three months.


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