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Watch Silver Tuesday As September Comex Options Expire

By Kitco News
Friday August 22, 2014 8:13 AM

(Kitco News) - Expiration of Comex September options on futures occurs Tuesday and market participants may watch the silver market a little more closely, precious metals observers said.

That’s because the September silver futures is also the most-actively traded silver contract, which means if holders of September silver options choose to exercise their positions it may have an influence on the underlying futures.

An option on futures is the right, but not the obligation, to buy or sell at an agreed-upon price. A call gives the option to buy at a certain price and a put is the option to sell at a certain price.

Sean Lusk, director commercial hedging division, Walsh Trading, said activity in silver bears watching. “It could be big. Recent dips below $19 and into $18 have become nothing but opportunities in silver this year.”

So far silver has held initial support just under $19.29 an ounce, but a break of that support could mean a push down to $19.07, Lusk said.

Lusk said he suspects silver might rally into options expiration. “As soon as they get the options expiration, anybody long $20 puts, $19.50 puts, they’re going to buy back the futures going into Monday and Tuesday. They’re going to avoid exercising and cover on the futures side,” Lusk said.

Much of the open interest in September silver puts is around the $20 strike price, which as of Thursday stood at 1,845 contracts.

George Gero, precious metals strategist and vice president with RBC Capital Markets Global Futures, said September options expiration may have some effect because there is a corresponding futures contract, but he doesn’t see a major impact. He said traders may focus on the $18 puts and the $20 calls, but it may not matter as the futures prices are not likely to trade anywhere near those levels.

“I think silver is going to hang around the $19 handle one way or another,” Gero said.

Gold, Copper Options Expirations To Be Quiet

Neither Gero nor Lusk expect any fireworks out of the September gold or copper options expirations.

“Sept’s a serial month, so it’s not going to carry the weight an August contract or a Dec would (as far as) open interest is concerned because there’s no underlying futures contract,” Lusk said.

A serial month means there is no corresponding options contact. The most-active gold futures contract is December.

Gero agreed. He said after options expire on Tuesday gold-market participants may return as buyers, taking advantage of current weakness.

“I’m looking for a rally (in the futures) after options expiration… I think most of the selling is taking place now prior to (Federal Reserve Chair Janet) Yellen (and her speech Friday at the Kansas City Fed Jackson Hole conference) and because of the jobless (claims) report,” Gero said.

Although there is a s September copper futures contract, the expiration of the September options will likely have no impact on the underlying contract, Gero said, because there is very little open interest in the market.

As of Thursday there were a total of 350 September copper calls and 675 puts.

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By Debbie Carlson of Kitco News; dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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