The Silver Bullet

Truth be told, only readers of this site would have been confidently buying last week at $34 silver. It is my sincere hope that your faith in me has rewarded you with some nice gains over the past week. We took a lot of grief for the beating The Cartel mercilessly applied earlier this month but we kept our heads in the game and, with the creative use of a little white-out, came up with an actionable game plan.
http://tfmetalsreport.blogspot.com/2011/05/its-finally-over-now-what.html

Silver is now being quickly drawn toward $39.50. I’m a bit surprised at how quickly it is getting there as I didn’t think it would approach that level until next week. Who knows, it may still wait until then to get there. However, as you can see on the chart below, there is nothing from a technical standpoint that stands in its way.

Gold continues to struggle with 1525 but copper is back above 410 and crude is at 101 so, provided extraneous events don’t cause an unforeseen dollar rally overnight, silver should continue to climb toward our short-term goal.

Lastly, I’ve received several inquiries regarding my current option strategy in silver. In summary, it is this:
1) I bought 2 July $45 calls earlier this month, trying to “catch the knife”. Oops.
2) I also bought 2 July $40 calls last week at the actual bottom. Hooray!
3) My stated goal for July silver is somewhere around $43.
4) This means I expect the July $45s to expire worthless.
5) I also expect resistance and a pullback once silver reaches above $39.
6) When silver reaches above $39, I plan to sell a total of 4 July $45s. These are the two I currently own plus two more. Selling 4 July $45s may bring in about $10,000 for my account.
7) I can sell the additional two $45s because I own (long) the two $40s.
8) This creates a “spread” whereby I am long the 40s but short the 45s.
9) This means that, once silver exceeds $45, I no longer make any money.
10) This trade is optimized IF silver closes right at $45.00 on option expiration day in late June.
11) My upside gain potential is now capped. I’ll make the same amount of money now if silver closes upon expiration at 45.01, 55.01 or 65.01. It doesn’t matter. The most I can make is:
$5000/point X 5 points X 2 contracts = $50,000 total
12) IF silver retreats and closes upon expiry below $40, all of my calls are worthless but I get to keep the $10,000 I received when selling the $45s.
13) IF silver closes upon expiry at $43, the $45s are worthless but the $40s are worth $15,000 each.
$5000/point X 3 points X 2 contracts = $30,000 total

I fear that I just made that about as clear as mud for most of you but I wanted to try.
Again, if you have detailed questions or if you have an interest in opening your own account, here’s a link from last year that provides some help.
http://tfmetalsreport.blogspot.com/2010/12/opening-options-account.html

Thanks again for reading. TF

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