Back Derivatives Strategy

Buy July SLV Calls to Play For a Continued Breakout in Silver

Published on June 2, 2025

Jeff Jacobson

With the 5%+ rally today, it appears the breakout in silver may finally be happening. Besides the breaking above the October downtrend resistance, the move is happening today on much heavier volume than normal. In addition, we are seeing a huge pickup in option activity with more than 3x the normal average (as well as calls trading at 5x the volume that the the puts are trading at).

What stands out to me, however, is that SLV call implied volatility still screens cheap (even with the move today). If we look at July 40-delta call implied vol it currently trades ~ 29.5. On the previous times where we have seen a large push higher in the underlying commodity (like May ’24 and Oct ’24) we saw 40-delta implied vol trade up to between 37 and 40 (see below). Also of note is the heavy skew of open interest of calls to puts (4.3mm call open interest vs only 1.6mm put open interest). In addition, a large amount of this call open interest happens to be in June. Just looking at the June 20^th SLV calls, starting with the 30 strike, there is nearly 700k of open interest. If we continue to see a strong bid to silver, then the potential for a dealer gamma squeeze becomes more of a potential reality.

Given this setup, I like the risk/reward of buying upside SLV calls here to not only play for a continued breakout, but to capture what I believe to be “cheap” calls (especially given the risk for some type of gamma squeeze higher).

Trade:
Buy SLV July 33 calls for $0.84 (SLV 31.56 ref)

Trade Details:

Buying the July upside calls with silver potentially breaking out to new highs
July upside call vol ~ 29-30 is far below levels we saw on previous sharp rallies (I would expect a bump in vol should we see a continued move higher)
Large skew in open interest of calls to puts, with a fair amount of that open-interest in the front-month June options – potential for a dealer gamma squeeze is real
Calls can be added to an existing long silver position, or as a limited-risk bullish bet get favorable technical and vol setup

SLV breaking above the Oct 2024 downtrend with volume heavy

Even with the move higher today, July 40-delta call vol remains well below levels it traded to on previous spikes in silver (like May ’24 and Oct ’24)

Significant open-interest in the June calls could lead to a dealer gamma squeeze should we see a continued bid to the underlying commodity

The US$ index (DXY) just above the April lows. A break below those levels could continue to give a bid to commodities and specifically silver

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