Stocks quoted in this article:
Put volume is running slightly above normal on the iShares Silver Trust (ETF) (NYSEARCA:SLV - 32.84) today, and the two most-active options trading today won't expire for more than two years. Nearly 20,000 contracts have traded at the January 2015 26 put and 38 call, trumping existing open interest at both LEAPS strikes.
Blocks of 16,650 contracts traded at both strikes, with the put going off at the ask price of $3.55 while the call traded at the bid price of $4.65, for a net credit of $1.10. If this is a synthetic short spread (using options to simulate a short sale), gains are unlimited down to the zero strike south of $26 and losses are unlimited above the breakeven price of $39.10. If the ETF is trading at or between the two strikes at expiration, the investor keeps the credit collected.
Two-plus years seems like a long way to go to collect a $1.10 credit, so this may alternatively be a collar strategy. This combines long stock with a protective put and a covered call (one each for every 100 shares owned). Effectively, a collar hedges against downside in the underlying security (through the long put) at the expense of capping upside at the short call strike.
The SLV is fighting against the market downtrend today, trading marginally higher but still fighting newfound overhead resistance at its 10-day and 20-day moving averages.
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