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Options: Traders Bullish on Silver

Jud Pyle CFA

At least one investor is expressing bullishness, betting on iShares Silver Trust ETF (SLV Quote) and boosting normal daily volume more than 20-fold today.

Between 1 p.m. EDT and 2 p.m. EDT, an investor sold 100,000 SLV Jan. 2010 13 puts and simultaneously bought 75,000 SLV Jan. 2010 14 calls. He also sold 100,000 Jan. 2010 19 calls in the name. Normal daily options volume in SLV is around 10,000 option contracts, but approximately 220,000 SLV options have traded with about half an hour left to go in the trading day.

SLV stock is currently trading at $15.44, up 51 cents on the day. These shares have rallied almost 100% since reaching a 52-week low on Oct. 27 last year (the stock sank to $8.85), and one customer is betting that SLV stock will climb higher than $14, but stay below $19 come January expiration.

Current open interest of the Jan 2010 13 puts is 6,900. The Jan. 2010 14 calls are home to current open interest of 4,000, while current open interest of the Jan. 2010 19 calls is 20,700.

The investor sold the Jan. 2010 13 puts at 80 cents per contract, and bought the Jan. 2010 14-19 call spread for $3.45.

The stock could be rallying in part because of analyst reports that Silver is poised for its biggest gain in 22 years. SLV shares have gained 33% so far this year compared to the 40% decline it saw in the second half of last year.

Bullishness we saw today on silver could be a good reason to buy SLV instead of gold, which has grown only 9.4% so far this year, but those bearish on silver have plenty of SLV supply to work with. It's interesting to note that at least one investor is proving that while gold may be first and silver second, second might still be best.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.