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Bears Maul Silver Wheaton Corp. on Continued Struggles

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SLW hits a 52-week low, prompting put buyers to load up for the long term.

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Silver Wheaton Corp. (NYSE:SLW) is hovering around a 52-week low of $18.15 today, having shed 5.6% on the session as precious metals take a hit. The touching of the monumental mark has sent option volume up, particularly on the put side, where over 9,900 contracts have traded -- compared to an expected volume of under 8,800 contracts.

The most popular target is the January 2014 16-strike puts, where over 1,500 contracts have changed hands, 86% at the ask price. With implied volatility up, and volume outstripping open interest, it's probable a large portion of the LEAPS were bought to open at a volume-weighted average price (VWAP) of $1.82.

In order for the bears to profit, they need SLW to descend to $14.18 (strike price minus VWAP) by January expiration. If the shares refuse to cooperate, however, the most the traders can lose is the premium paid.

Put buying has been in vogue over the past 10 sessions. Silver Wheaton's 10-day put/call volume ratio is 0.51, which is higher than 78% of comparable readings taken over the past year. In other words, traders are picking up puts over calls at a faster-than-usual pace.

For some reason, however, the brokerage bunch isn't following suit. Fourteen of 16 covering analysts rate SLW a "buy" or better, including 12 "strong buys" -- that's slightly more pessimistic than their sentiment last month. The stock could continue to be pressured lower, though, should analysts follow in the footsteps of Credit Suisse, which downwardly revised its outlook for SLW today.

Technically, Silver Wheaton Corp. has had a disastrous 2013 campaign, losing nearly 50% in half a year. Moreover, in the past three months, the mining name has lagged behind the broader S&P 500 (INDEXSP:.INX) by roughly 35 percentage points.

This article by Alex Eppstein was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
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