Analysts warn that hyped up $1,000 silver call options are not realistic

A trending topic on the social media platform X on Tuesday was the recent growth of extreme out-of-the-money calls in the silver market, with some noting December options with a strike price of $1,000. Some financial market influencers have equated the enormous spread to “smart money” betting on much higher prices by year-end.

However, some commodity analysts warn that these call options are bordering on ridiculous and are “garbage” trades.

One market analyst said he sees the call options as an attempt to “hype” prices back to the January highs, which he expects would trigger another price collapse.

In a comment to Kitco News, Carley Garner, co-founder of DeCarley Trading, said that while the CME lists a $1,000 silver call for December, there currently isn’t a single contract with open interest, indicating that nobody has actually traded it.

However, she said there are a couple of factors driving these extreme call options.

She explained that the first factor is simply a function of market dynamics, as retail investors look for cheaper investment options.

“Silver options have become so expensive that small retail speculators are forced to buy call options with strike prices that are wildly out of the money, because that is all they can afford,” she said. “The margin to hold silver futures is currently over $50,000, and an at-the-money call option for December 2026 is going for about $60,000. If you want a long-term play and only want to risk a few thousand, you go to the December $1,000 calls.”

She added that the natural gas options market saw similar price action in 2022, with strike prices extending out to $40.

“Even those buying [silver] $1,000 calls likely don't expect it to reach that price; they just want in on the action without margin,” she said.

Garner said the second factor driving these call options could be seen as more malicious. She explained that this strategy was one way “Reddit retail investors” were able to squeeze GameStop shares.

“If enough people buy wildly out-of-the-money calls, the dealers and market makers that sold them will be forced to buy futures at some point to hedge their risk, then the rally feeds on itself. It isn't healthy, and it has nothing to do with fundamentals; it is a modern-day pump-and-dump scheme,” she said.

Garner has been fairly bearish on gold and silver, as she views the parabolic rally over the last few months as unsustainable. She added that she sees this hype in the options market as potentially bearish.

“The buying of such options en masse runs up implied volatility in the market,” she said. “Elevated option market volatility is always temporary, and it almost always accompanies a trend reversal.”