Why trader is selling calls in silver fund

optionMONSTER

The iShares Silver Fund is trying to recover some of the enormous losses it has seen recently, but traders apparently see only limited upside in the long term.

optionMONSTER systems show that January 2015 calls top today's option activity in the SLV. A trader sold 9,800 of the 22 calls for the bid price of $3.60, and another 12,000 calls were sold at the 26 strike for $2.03 half an hour later. The volume at each strike was above the previous open interest, so these are clearly new positions.

The calls could have been sold naked with an initial bearish bias. But they were more likely traded against long shares of the SLV in a covered call trade, especially in the case of the lower-strike, in-the-money options. That strategy is bullish up to the strike price but gives up any gains beyond that. (See our Education section)

The SLV is up 3.39 percent to $23.18 today after hitting a low of $21.96 last week. Shares have been trending lower for months but gapped down from the $26 level at the start of last week.

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