SLV Option Idea

An Intriguing Silver Trade

I spend a fair amount of time dissecting option flow for the following reasons:

  1. Copying from another can be the highest form of flattery
  2. Institional traders know a lot more than I do
  3. Puzzles inspire me

Yesterday I stumbled on an option trade in the Silver ETF, SLV which has intrigued me for the last ~12 hours, a call butterfly at the 40/50/60 Jan 13 strikes. IV at 42/44/46 and the risk profile looks like this:

SLV Option Idea
SLV is at $29.29 so this trader finds maximum profit at 50 or a 59% rise in SLV over the course of the year. Remember, the expiration is 11 months out. Now look at the yearly chart for silver:

SLV 1 Year Chart

This trader is betting that before the year is out $SLV will retrace it’s past year highs. On first glance I couldn’t quiet understand why anyone would want to take this trade. It cost $0.70 (x 10k) or $70,000.00 and granted if SLV tests last years highs the profit on this trade would be a factor of 10. So… Still why would you make this trade? A market makers hedge against something I don’t understand? Could it be a hedge against a short futures position? A pure macro play assuming Silver becomes a safe haven? Wouldn’t a long call with lower strikes or a bull spread at lower strikes bring the same risk reward? If anyone that reads this has any idea, I’d love to hear.