From tonights Midas report:

SLV option activity

Bill,
I was listening to Fast Money today on CNBC and the first 9 minutes or so was devoted to gold and silver. The bears rolled out dream team member, Dennis Gartman, who indicated that gold and silver are in serious trouble. The guy on the far left was saying the same thing because gold and silver had outside reversal days. No legitimate reason was given for the move down except that the price action confirms the validity of the move. Same old crap. Sometimes I wonder why I watch this.

The guy with the pony tail (who is their option guy) had some pretty interesting observations about the option activity in SLV. He seems to be objective and does not seem to have a perpetual bias to bash gold and silver every chance he gets. He noted that there was more call activity than put activity in SLV which is unusual on a down move like today. He noted the call activity was approx. double the put activity. He also noted there was heavy call option buying in SLV for the May options which is also unusual on a big down day like today (2/29/12). I figure I will check this out for myself.

Below are the most active put options as reported by the WSJ for 2/29/12.

You can see that there was heavy buying of SLV put options which is not unusual on a big down day. There were 196,001 SLV put options that were purchased which was 4.4 times normal activity as reported by the WSJ. On a big down day in silver, you would normally see a lot less option activity in the call options. Here is the call option activity as reported by the WSJ.

You can see that 330,263 call options were purchased which was considerably in excess of the SLV put options. It should also be noted that traders also bought a lot of call options in other gold and silver items such as GLD, AGQ, SLW, and NEM. Since I don’t trust this data to be 100% accurate, I decided to check the SLV option activity myself.

Below is a little table I put together concerning call and put option activity for SLV options obtained through Charles Schwab. I only included option activity for the weekly options that expire on 3/2, and the monthly options for March, April, and May. That is the bulk of the option activity for the SLV options. You will notice that the total call options through May amount to 348,923 contracts which is in excess of the WSJ figure of 330,263 contracts. You will also notice that the put option activity through May of 208,830 contracts also exceeds the WSJ total of 196,001 contracts.

It should be noted that silver was down $2.11/oz to $34.82/oz. During prior silver routs, you would normally see a boatload of put options compared to the call options. SLV closed 2/29/12 at 33.55. The most actively traded March call option had a strike of 35 with volume of 31,127 contracts and open interest of 24,999 contracts. It would appear that someone is betting on a pretty fast snap back in silver. The most active call option for May had a strike of 36 with volume of 25,787 contracts and open interest of 4,515 contracts.

Prior to today, silver had 4 closes above its 200 dma and as of 2/29/12 is sitting right on the 200dma. For the moment, silver is above the 10 dma, 20 dma, and 50 dma. I am not saying that JPM cannot blast silver below these moving averages in heartbeat. The option activity above would seem to suggest that there may be a different outcome than the usual silver rout.
Paul