So here’s a graph of iShares Silver Trust (NYSE: SLV) volatility over the past three months. In yellow we have 30-day Implied Volatility, more or less the “VIX” for SLV. In blue we see 20-day Historical Volatility, the pace at which SLV has fluctuated over the past 20 trading days.

Now if you just looked at options, you would have noticed quite the spike. I mean IV literally doubled from mid-April to early May. And of course, when volatility doubles in a few weeks, options trading investors want to find a way to sell it. Especially in a non-stock. I mean, no one’s taking over SLV, right?

But of course, it is just never that simple. Option volatility is only high or low relative to the realized volatility in the underlying. When we buy an option, say with 30 days duration, we must estimate the realized volatility going forward, since we don’t actually know the answer. But we can look backwards. And in SLV, the pop in realized volatility dwarfs the doubling in implied volatility. As you can see on the graph, it actually quadrupled, from the low 20’s to over 80.

And even that understates it. Here’s the “noisier” 10-day HV.

Yes, 10-day HV jumped over 100% this week. Using the “Rule of 16”, that suggests SLV moves about 6.5% per day lately, which I am sure won’t come as news to those of you that have been watching this animal fly around in the last month.

What I really want to point out is that you should only refer to options as high or low relative to the volatility in the underlying. And trade accordingly. SLV options at 60 volatility represent no bargain long term, but in the here and now they severely underprice the actual volatility in SLV. This too shall pass, but not overnight.

Follow Adam Warner on Twitter @agwarner.