SLV Open Interest

The blue boxes are JAN 13 expiration. You can ignore the red JAN12s. This is a graph of open interest in the CALL and PUT side respectively. I’ve learned the best way to interpret this data is that a larger open interest implies a speculative short contract position. This is a zero-sum market but the long is hedged and traded away. A position of that size which is that deep ITM likely had the majority of it opened as a short position. Since it’s a sell you look at this and assume they’re betting that the underlying will go below the CALL strike and stay above the PUT strike by a certain date.

When you analyze this trade, taking into account the ratio between the CALL and PUT open interest you see a prediction for a move to 20 over the next 2.5 years. The ratio spread is similar to a strangle but you can see they leveraged the ratio to move the steepest losses to the range of 20 to 0. The payout is at it’s highest at $20/sh where it pays 8:1 and breaks even between 4.32 and 46.17. It’s closing price on 4/26/11 was 44.03.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: