Silver has been hot for weeks, and yesterday was no different.
Option volume surged in the iShares Silver Trust ETF early, surpassing 84,000 contracts in the first hour of the session and closing with more than 200,000. Calls dominated the activity and contributed 150,000 of the total.
Traders had been taking short-term positions recently, but yesterday they shifted to October contracts. In particular, they bought the October 33 calls for $0.79 and sold the October 37s for $0.17 to help offset the cost, according to our Heat Seeker tracking system.
That means the traders paid about $0.62 to open this vertical call spread , which will let them collect $4 if the fund rallies to $37 on expiration two weeks from today. The SLV rose 1.28 percent to $31.67 yesterday and is already up 17 percent in the last month!
Owning calls locks in the price where investors can buy a stock or ETF, while selling calls obligates them to unload shares if they reach a certain level. This can provide major leverage, as yesterday's spread could earn more than 500 percent if it expands fully. (See our Education section)
Total option volume in the fund was more than double its daily average of about 90,000 contracts.
Disclosure: I am long SLV.
(A version of this post appeared on InsideOptions Pro yesterday.)
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