Silver Futures and Options Market Trading

Learn the most effective strategies for buying and selling options on futures contracts. Also learn producer and consumer hedging strategies.

*The information contained within this webpage comes from sources believed to be reliable. No guarantees are being made to the content's accuracy or completeness.

The History of Silver and Silver Futures

As early as 700 B.C., the Mesopotamian merchants used silver as a form of exchange. Later, many other civilizations also came to recognize the inherent value of silver as a trading metal.

The ancient Greeks minted the drachma, which contained 1/8th ounce of silver; and in Rome, the basic coin was the denarius, weighing 1/7th ounce. And let’s not forget the English shilling "sterling," originally denoting a specific weight of silver, which has come to mean excellence. Silver is considered by many investors to be an inflationary hedge and a currency hedge against devaluing currencies.

COMEX Silver Futures and Options Quick Facts

5000 ounce contract size
one cent move equals $50
trades Jan., Mar., May, July, Sep., Dec., Serial
Silver futures symbol (SI)

Here is the option strategy guide for metals courtesy of the CME Group.

Metals brochure

In 1792, silver assumed a key role in the United States monetary system when Congress based the currency on the silver dollar, and its fixed relationship to gold. Silver was used for the nation's coinage until its use was discontinued in 1965. In 1972 President Richard Nixon took the United States off of the gold standard which led to the dissolution of the Bretton Woods currency system. Mexico is the only country that still uses silver in its coinage.

Today, silver is sought as a valuable and practical industrial commodity, and as an appealing investment. The largest industrial users of silver are the photographic, jewelry, and electronic industries often use silver futures and options to hedge their risk. Silver conducts heat and electricity better than any other metal. Silver is used in cell phones, plasma TVs, computers and many other electronic devices. Unlike gold, silver is considered non-recyclable because of its minute density within the electronics that it is used for. In other words, it is unlikely that someone will break apart their cell phone to reclaim 10 cents worth of silver used in its production.

During the September 11 terrorist attacks the COMEX was destroyed but within days the silver futures and silver options markets were trading again. This is a testament to the strength and reliability of the silver futures markets and the commodity exchanges.

Are you a silver hedger? If so, click here to learn more.

Silver Options on Futures Contracts Explained

A silver call option gives the purchaser the right but not the obligation to purchase the underlying futures contract for a specific time period and a specific price (strike price). Let's say that you wanted to purchase a July silver $20.00 call option and pay a premium of $1,925.

This means that you bought the right but not the obligation to buy 5,000 ounces of July silver for $20.00 per ounce. Of course, very few options are bought for the purpose of taking delivery but that is one potential outcome. Chances are that you either bought the silver option to hedge your price risk in the physical silver market (you may be a producer and own a silver mine or an end user like a jewelry fabricator) or you are speculating that silver prices will go higher in an attempt to make a profit.

A silver put option gives the purchaser the right but not the obligation to sell the underlying futures contract for a specific time period and a specific price. Let's say that you wanted to buy a July silver $19.00 put option and pay a premium of $1,150.

This means that you have the right but not the obligation to sell 5,000 ounces of July silver at $19.00 per ounce.

What is the delta factor?

The delta factor of an option represents the estimated percentage of change an option will receive based on the movements in the underlying futures contract.

Let's assume the July silver $20.00 call option above has a 30% delta factor. This means that if the underlying futures contract were to rally by $1,000, then the call option would accrue by approximately $300 or 30% of $1,000 in the silver futures contract.

What is theta?

Options are wasting assets which means that they lose value as time passes. The theta of an option is the measure of time decay.

Let's assume that you bought a July silver $20.00 call option with 60 days left until expiration. Let's also assume that the silver futures prices have moved very little over the last month and are exactly the same price 30 days later. Your option will have lost 30 days worth of time and therefore will be worth less today that it was when it had 60 days left until expiration.

What is vega?

Vega is a measure of the implied volatility of an option contract as it relates to its underlying futures contract. For instance, if the underlying futures contract is extremely volatile then the implied volatility of the options of that futures contract will be affected.

In a high implied volatility environment option premiums tend to expand. Conversely, in a low implied volatility environment the option premiums tend to decrease.

*Contract information changes from time to time. Please click here to see the most recent contract specifications and click here for the most recent trading hours.

COMEX Division Silver Futures and Options

Contract Specifications

Trading Unit

Futures: 5,000 troy ounces

Options: One COMEX Division silver futures contract

Trading Hours

Silver Futures and Options: 8:25A.M. To 1:25P.M., New York time, for the open outcry session.

Trading Months

Silver Futures: Trading is conducted for delivery during the current calendar month, the next two calendar months, any January, March, May, and September thereafter falling within a 23-month period, and any July and December falling within a 60-month period beginning with the current month.

Silver Options: The nearest five of the following contract months: March, May, July, September, and December. Additional contract months - January, February, April, June, August, October, and November - will be listed for trading for a period of two months. In addition, a 24-month option is added on a July - December cycle.

Price Quotation

Silver Futures and Options: Dollars and cents per troy ounce.

Maximum Price Fluctuation

Silver Futures: Price changes for outright transactions, including exchanges of silver futures for physical (EFP), are in multiples of one-half cent ($0.005) per troy ounce, equivalent to $25 per contract. For straddle or spread transactions, as well as the determination of settlement prices, the price changes are registered in multiples of one-tenth of a cent ($0.001) per troy ounce equivalent to $5 per contract. A fluctuation of one cent ($0.01) is equivalent to $50 per contract.

Maximum Daily Price Fluctuation

Silver Futures: Initial price limit of $1.50 above or below the preceding day's settlement price. Two minutes after either of the two most active months’ trades at its limit, trades in all months and in silver options will cease for a 15-minute period.

Options: No Price Limit.

Last Trading Day

Silver Futures: At the close of business on the third last business of the maturing delivery month.

Silver Options: Second Friday of the month prior to the delivery month of the underlying futures contract. Two-month options - second Friday of the calendar month which is two months after the month in which the option is listed.

Delivery

Silver delivered against the silver futures contract must bear a serial number and identifying stamp of a refiner's officially listed brand. Delivery must be must be made from a warehouse or vault licensed or designated by the Exchange specifically for the storage of silver.

Delivery Period

The first delivery day is the first business day of the delivery month; the last delivery day is the last business day of the delivery month.

Exchange of Futures for Physicals (EFP)

The buyer or seller may exchange a silver futures position for a physical position of equal quantity by submitting a notice to the Exchange. EFPs may be used to either initiate or liquidate a futures position.

Trading Symbol

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To see other metal futures visit gold futures, copper futures and platinum and palladium futures.

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