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By 
February 01, 2021 at 03:50 PM
Silver coins (Photo: Chris Ratcliffe/Bloomberg)
The latest wave of the retail trading revolt has migrated to silver futures and options from GameStop and other stocks. It’s evident not only in price, in which silver futures jumped to $30 an ounce from $25 a week ago, but in the level of activity.
From Jan. 19 through Jan. 26, the volume of 5,000 ounce silver futures contract averaged about 80,000 contracts a day. Options volume averaged about 7,500 a day.
But the Bastille was stormed on Thursday, when 205,000 silver futures contracts traded, and a whopping 45,000 silver options contracts traded as well.
On Monday, trading volume in the silver futures contract was roughly 300,000.
This scenario evokes memories of the Nelson Bunker Hunt silver corner of 1979, in which silver futures jumped to roughly $49 per ounce from $8, as the Texas oil baron and others tried to corner the silver market. But futures markets are not stocks, and 1979 isn’t today.
What’s the Same
One similarity is how the market players have reacted to the frenzy: Robinhood changed its rules and limited stock purchases; in 1979, so did the Commodity Exchange, which trades silver futures.
The uproar caused by the Hunts is like that being generated by today’s retail traders — led by the Reddit chat group Wall Street Bets.
But as Henry Jarecki, then chairman of Comex said about the Hunt corner at a later time, “an exchange is going to protect itself.”
What’s Different?
But how are futures and options markets different from stock markets when confronted with these trading frenzies? First, shorting futures is a fact of life in both the commodities and options markets — as is volatility.
The exchanges, especially the Chicago Mercantile Exchange, which owns Comex, is agile in raising margins to cool off hot tempered traders. Also, margin is marked-to-market, which means it’s collected before trading opens the next morning.
Also, the price of one silver futures contract today is roughly $145,000. The CME’s Initial margin, the deposit on a contract, is $15,400, and the maintenance margin, the amount that varies according to market volatility, is $16,500 per contract (was $14,000 on Monday but was raised by the exchange to be effective Feb. 2 at the close of business).
