The Paradox of Silver's Rally: Why SLV's 70% Surge Is Fueling Bearish Bets

The iShares Silver Trust (SLV) has surged by 70% in recent months, defying traditional market logic and sparking a surge in bearish bets. This paradox-where a sharp rally coincides with growing pessimism-highlights the interplay of contrarian investing, market psychology, and structural risks embedded in the ETF's mechanics. While short-term euphoria dominates headlines, a closer examination of historical drawdowns, Reddit-driven sentiment, and arbitrage dynamics reveals a compelling case for long-term skepticism.

Market Psychology: The Illusion of Safety

Despite SLV's meteoric rise, bearish sentiment is quietly gaining traction. Data from Barchart shows the put/call open interest ratio for SLV stood at 0.56 as of November 28, 2025, indicating a preference for bullish bets. However, this ratio masks deeper unease. On the same date, the put volume/put open interest ratio was a mere 0.08, while the call volume/call open interest ratio was 0.15. These figures suggest minimal "unusual activity" in options trading but underscore a broader trend: investors are hedging against potential reversals.

Retail investors on Reddit are amplifying this sentiment. Discussions reveal a growing interest in buying put leaps on SLV for January 2028 at the $40 strike, driven by fears of a repeat of historical drawdowns. This behavior reflects a classic contrarian dynamic-retail traders, often late to the trend, are now positioning for a correction as the ETF's rally matures.

Historical Drawdowns: A Cautionary Tale

SLV's volatility is not new. Historical data reveals a maximum drawdown of -72.16% over a 175-month period from 2011 to 2025. More recently, the ETF experienced an 8.2% single-day decline on October 21, 2025. These figures are sobering for investors who view SLV as a "safe" haven. The average 5.3% daily declines in its 12 largest down moves further highlight its susceptibility to sharp corrections.

The psychological impact of such drawdowns cannot be overstated. As SLV's price climbs, investors who missed the initial rally may perceive it as overbought, fueling bearish bets. This creates a self-fulfilling prophecy: the more the ETF rises, the more it becomes a target for contrarians.

ETF Mechanics: Amplifying Volatility

SLV's structure as a physically backed silver ETF introduces unique risks. The fund holds 495 million ounces of silver in allocated bars, with an expense ratio of 0.50%. While this physical backing ensures transparency, it also ties the ETF's price to the liquidity of physical silver. Arbitrage dynamics, now dominated by AI-driven algorithms, exacerbate this link. In fast-moving markets, even minor discrepancies between SLV's price and silver's spot price can trigger rapid corrections, amplifying volatility.

Moreover, the redemption process-where authorized participants exchange shares for physical silver-introduces a layer of complexity. Large redemptions could temporarily decouple SLV's price from its net asset value (NAV), creating opportunities for arbitrageurs but also increasing the risk of sudden price dislocations.

Strategic Implications for Investors

For contrarian investors, SLV presents a double-edged sword. On one hand, its rally has created a fertile ground for bearish positioning, as evidenced by the surge in put options and Reddit-driven sentiment. On the other, the ETF's structural mechanics and historical volatility suggest that any correction could be severe and prolonged.

A tactical approach might involve hedging long positions in SLV with out-of-the-money puts or using covered calls to generate income while mitigating downside risk. However, investors must remain vigilant about macroeconomic headwinds, such as delayed Federal Reserve rate cuts and trade policy uncertainties, which could further destabilize the market.

Conclusion

SLV's 70% surge is a testament to the power of market euphoria, but it also serves as a warning. The interplay of historical drawdowns, Reddit-driven contrarianism, and ETF-specific risks creates a volatile cocktail. While the short-term outlook appears bullish, the long-term case for SLV is clouded by structural and psychological headwinds. For investors, the key lies in balancing optimism with caution-a lesson etched in silver's storied history.