*Option players boost bullish stance in gold, silver ETFs

*Silver ETF attracts multi-leg options trade

CHICAGO, May 29 (Reuters) — Options players on Friday have stepped up their bullish bets on exchange-traded funds that track the performance of the prices of gold and silver, expecting precious metals to shine through year’s end.

Gold prices climbed more than $20 this week as oil rallied to its highest level this year, while the dollar fell to five-month lows against a basket of currencies on signs of an easing of recession, boosting the value of gold as a hedge against the U.S. currency.

Gold futures rose above $980 an ounce on Friday to end near a three-month high. Silver prices tracked gold higher to a near 10-month peak of $15.63 an ounce, the metal’s strongest level since August 8. Silver was at $15.61 an ounce, up 3.2 percent from its previous finish of $15.12.

Fears over near-term deflation and long-term inflation have conspired to undermine the value of the dollar, boosting the appeal of precious metals, said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Connecticut.

That appears to have attracted more option traders in gold and silver ETFs looking for a move higher.

In the ishares Silver Trust ( SLV.P ), an investor appeared to have enacted a complex call and put combination in the January 2010 contract, expecting the ETF to rise in price by at least 23 percent by January expiration, Wilkinson said.

Shares of the SLV, the world’s largest silver-backed ETF, rose 3.55 percent to $15.46 near the close.

This combination involved 275,000 contracts and compares to almost two-thirds of the 429,870 positions already held by investors in the SLV, according to Interactive Brokers’ data.

Wilkinson said it looked like the strategist bought 75,000 January $14 strike calls for a premium of $2.80 per contract and to offset that cost appeared to have sold 100,000 puts at the $13 strike price and calls at the $19 strike price for a combined premium of $1.80 a contract.

That effectively reduces the cost of the bullish trade in the ETF. The trader faces a good amount of upside in the event that silver prices continue to go up, he said.

The total package seems to reflect the view that the exchange-traded fund will continue to shine during the second half of 2009, said WhatsTrading.com option strategist Frederic Ruffy.

Separately, traders increased their bullish stance in the SPDR Gold Trust ( GLD.P ), the world’s largest bullion-backed exchange-traded fund, on the view that the price of gold will keep on rising in the face of a weaker dollar.

Wilkinson said the ETF had attracted a $100/$105/$110 call butterfly spread trading for a 50-cent premium in the June contract. The trade involved the sale of 30,000 calls in the body and half of that amount bought at the surrounding wings.

This investor would benefit most should the ETF shares settle at $105 at June expiration, he said.

But a far more bullish trade indicates a view that gold’s rally will be sustained through year-end.

This was reflected by a large bull call spread which involved the December $120 and $140 strikes. The break even for the trade would require GLD shares to rise to $121.77 by December expiration, Wilkinson said.

GLD shares advanced 2.09 percent to $96.21. (Reporting by Doris Frankel; Editing by Kenneth Barry)