Commodity and metal traders may want to pay attention to an interesting trade that occurred within the silver market Thursday. An investor (or an institution) was seen buying 19,500 call options on the most commonly tracked silver exchange traded fund, the iShares Silver Trust (ETF) SLV.
Specifically, 19,500 25-strike call options that expire in January 2019 were bought at a cost of $0.47 per option, Susquehanna's head of derivative strategy Stacey Gilbert noted during a recent CNBC "Trading Nation" segment. The total cost of the trade was $916,500 and the owner of the call options will make a profit of the ETF rises from Thursday's close of $17.10 to $25.47 before January 2019.
To many investors, this trade may be hard to comprehend, especially given silver's volatility over the past few years. After all, the ETF was trading just shy of $50 per share back in April 2011 and has been steadily declining since.
Of particular note, the trade shouldn't be viewed as an investor loving silver who thinks playing the option market is the best way to capture upside, Gilbert explained. Rather, the trade is likely a hedge and the investor is using silver in the same way that others might use gold.
The investor likely won't earn a profit from the trade unless there is some sort of issue or event which causes all precious metals in general to surge, Gilbert continued. But if this were to be the case then the investor's portfolio of other asset classes will likely fall at the same time — making the silver play an "insurance" policy.
Bottom line, the option trade is by all measures a "big order" but the buyer isn't screaming "I love silver," she emphasized.
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