Silver Wheaton Corp. (USA) (SLW) Option Bulls Eye a Bigger Breakout

Rising precious metals futures have sent Silver Wheaton Corp. (USA) (NYSE:SLW) through technical resistance at its 40-day trendline

by Karee Venema

Published on Dec 29, 2016 at 2:59 PM
Updated on Jun 24, 2020 at 10:16 AM

Shares of precious metals stocks are rising today, after gold prices gained ground amid a cooling U.S. dollar. Mining stock Silver Wheaton Corp. (USA) (NYSE:SLW), for instance, was last seen up 8.9% at $20.10. What's more, SLW's surge has it on track to close north of its 40-day moving average for the first time since late September, and options traders are loading up on calls -- seemingly betting on a bigger breakout above this former level of resistance.

By the numbers, around 28,000 SLW calls have changed hands today -- nearly four times what's typically seen at this point in the day, and on track to finish in the 96th percentile of its annual range. As a point of comparison, 10,300 puts have traded, although this is two times the expected intraday amount.

Call traders are showing particular attention to the $20 level, with possible buy-to-open activity detected at the  weekly 12/30 and January 2017 20-strike calls -- SLW's two most active options. If this is the case, call buyers expect the shares to extend today's rally north of the round-number mark over the next three weeks.

More broadly speaking, today's call-skewed trading just echoes the wider trend seen in SLW's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's top-heavy 50-day call/put volume ratio of 4.83 ranks in the elevated 90th annual percentile. In other words, calls have been bought to open over puts at a near-annual-high clip.

Those currently purchasing premium on SLW's near-term options are getting a relatively  good deal, too. The stock's Schaeffer's Volatility Index (SVI) of 42% ranks lower than 89% of all comparable readings taken in the past year, meaning low volatility expectations are being priced into its short-term options -- a boon to options buyers.

Looking at the charts, SLW surged in step with gold prices for most of the year -- topping out at a three-year peak of $31.35 in mid-August. Since then, it's been an entirely different story for the mining stock, which is down 36% from its Aug. 11 close at $30.57. However, Silver Wheaton Corp.'s (USA) (NYSE:SLW) selloff was recently contained near the $17 mark -- an area that served as support for SLW in late 2014.

daily slw since december 2015

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