Tuesday, April 12, 2011

Trade of the Day: Silver May $34/$36/$38 put butterfly 25,000x50,000

The Trade
A trader bought 25,000 May $34 puts at $0.41, sold 50,000 May $36 puts at $0.78, and bought 25,000 May $38 puts at $1.46 for a debit of $0.31 or $775,000.

As you can see from the graph above, the butterfly has limited risk and limited profit potential. The max risk is the debit. The max gain occurs at an underlying stock level of $36 at expiration. The max profit at a $36 underlying stock level is $4,225,000. The profitable range for the spread is $34.31 and $37.69. SLV closed today at $39.09. Therefore, the trader is slightly bearish.

The lines shown is the lower and upper break even price levels. The spread is profitable if the underlying stock level is between the two lines. The 52-week range is a low of $16.73 and a high of $39.67. SLV traded 534,596 contracts today compared to average daily volume of 221,830.

It's interesting to note that yesterday there were 100,000 SLV July $25 puts bought for $0.10. Today is the second straight day that a trader has spent close to a million dollars on a bearish bet on Silver.

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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