Drop In Silver Attributed To $1 Million 37% Downside Bet On SLV

Tyler Durden's picture

With everyone transfixed by the relentless move higher in silver, stories, myths and virtually anything is used a catalyst to explain any move lower in the precious metal. While earlier there already were two rumors that the COMEX would imminently hike gold and silver margins again (so for untrue) what is true, and what many are attributing the move in silver to, is what according to some is an outsized option bet that SLV will drop 37% by July. Bloomberg reports: "A trader’s almost $1 million bet that an exchange-traded fund tracking silver will plunge 37 percent by July was today’s biggest single options trade on U.S. exchanges as futures on the metal reached a 31-year high. The 100,000 options to buy 100 shares each of the iShares Silver Trust (SLV) at $25 by July changed hands at the ask price of about 10 cents and exceeded the open interest of 6,054 outstanding contracts before today, indicating that a buyer of a new bearish position initiated the transaction. The ETF rose to the highest intraday level since trading began five years ago, $40.33, before erasing gains. It fell 0.5 percent to $39.67 at 12:54 p.m. It hasn’t closed below $25 since November."

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“It’s definitely a massive downside bet on silver,” said Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics. “It’s so far out of the money that the buyer is probably just looking for a moderate pullback because a $3 retracement to where it was in March could double the position to $2 million.”

Silver for May delivery in New York climbed as much as 3.4 percent to $41.975 an ounce, the highest level since January 1980, when futures reached a record $50.35. It last traded at $41.33. Silver, where half of global consumption is industrial, has been rising because it benefits from a rebounding global economy as well as demand for a haven, according to UBS AG.

Of course, such a simplistic analysis certainly ignores what are likely numerous other components to a trade that is almost certainly multi-handed. After all let's not forget that it was none other than Morgan Stanley on Friday explaining why there appears to be a sizable short-gamma position in the market, which is substantially higher than just a $1 mm notional exposure, and which if anything, is a far more potent driver in the price of silver. Furthermore, if a $1mm bet is sufficient bet to push the market in either direction, then it is safe to say that there is absolutely no liquidity in the PM market whatsoever.

We are confident much more will emerge in the story of who is betting what and how much on future silver moves before June 30 comes.

Lastly, anybody out there heard of... gasp... hedging?