Silver Unwind - Opportune time to enter short volatility strategies

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Often the best times to enter short volatility strategies by selling options comes after a massive event has occurred in the market. These massive outlier moves often have the end result of lifting implied volatility higher, resulting in good entry points for selling vol. We go into details of one such example today, let’s dive in!

Silver had a massive deleveraging event on January 29 2026, resulting in a 35% move lower in the spot price in 1 day, which is really unheard of except in the most extreme market conditions. This came from news that the LME had raised the margin requirements for holding a futures position in the metal.

1 month at-the-money implied volatility finally settled at a sky high 98% after the move, which reflects a more than healthy risk premium embedded in the market and also expectations of further aftershocks in the spot price action. The volatility skew also reached elevated levels given the speed and ferocity of the downside move.

This resulted in an opportune time to sell implied volatility via option structures that are immune to the high frequency realized volatility of the underlying asset which market makers can monetize via delta hedging gamma positions. One such structure is simply to sell a 1 month 25 delta put on silver after the event with a partial delta hedge, as it seemed the brunt of the move had occurred already. This would have ended up being a profitable trade as the silver price pretty much saw it’s low on that day for the next month and also implied volatility eased from these lofty levels fairly soon.

Any questions, feel free to let us know in the comments. Until next time!