Bullish Trader Buys Silver ETF Options

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NEW YORK (TheStreet) -- Precious metals rallied on technical buying today, prompting one trader to place a leveraged bet on silver.

OptionMonster's tracking systems detected the purchase of 1,800 November 60 calls on the ProShares Ultra Silver(AGQ Quote) exchange traded fund for $3.45. An equal number of November 60 puts were written for $4.30, resulting in a net credit of 85 cents. Volume exceeded open interest in both strikes.

AGQ rose 5.9% to $58.09 in early afternoon trading. The fund, which is designed to provide twice the return of silver, spiked after gold and silver held recent gains and failed to break lower despite strength in the U.S. dollar.

"There's a tremendous amount of bullishness toward precious metals," said Jeffrey Christian, an analyst at CPM Group. "Prices rose to levels that triggered speculative buying." Christian thinks gold may rally to $1,200 by December given today's price action.

Today's options trade combines the leveraging power of options with the leverage built into AQG. By selling in-the-money puts, the investor maximized the credit received to offset the cost of the transaction. He will lose money if AGQ closes below $59.15 on expiration, and earn unlimited profit above $60.

Other investors purchased the November 60 calls for $3.40, betting on a 10% pop by expiration. Overall options volume in AGQ is seven times greater than average so far in the session.

-- Reported by David Russell of OptionMonster in New York.

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