Silver Shorts Pummeled and Bitcoin New ATHs

Covered Call Explanation - Pro's and Con's

The silver market keeps climbing, and short sellers are feeling the pressure. However, this rally appears more like a reactive short squeeze rather than a strong new uptrend. We’d prefer to see a high-volume breakout above $40 followed by a solid consolidation around $35, rather than this rapid surge. Right now, naked short sellers are being forced to cover, creating artificial buying pressure and driving prices higher. We see this as a temporary move and anticipate a sharp pullback at some point to establish a more stable foundation for silver. Don’t misunderstand—we believe the metals sector as a whole will outperform most assets over the next decade, but we’re cautious about buying at peak levels.

Same thing going on in Bitcoin, a lot of embedded leverage here and also a lot of organic buyers from Wall Street stepping in and buying new highs here as well. This weeks move negates the topping pattern and now the BTC bulls need to maintain above $107500 area to keep this going:

Crude Oil has been well supported the last two weeks at $65 and now will continue to push unless the FOMC starts to talk rate cuts! $72 to $65 are still the key areas to watch:

As far as the overall equity markets, we were not impressed. This weeks close in the Nasdaq futures failed to get above 23200 and in fact put in a more summer lack of incentive type close. Above 23200 and bulls maintain their edge, below 22425 the bears start to take over:

The same goes for the SP500 where we have 6350 as our current resistance and 6175 as support. Longer term we like the 5950 area as our pivot:

Remember, from our post last week that we want to take a look at JPMorgan, bank earnings come out this week in the morning on Tuesday and we will look at the July 18th options expiration. We looked at the $277.50/$267.50 put spread which was trading around $1.90 and was last around $1.35 We like the risk reward ratio here, $1.35 to make $8.65. This is a 6.4x trade. A close below $279 on the week would be a good sign of a short term top in place:

The big tech name Netflix (NFLX) is out on Thursday after the close and for this one we are looking at the Friday expiration of the 1225/1175 put spread. This spread is trading around $18.5 so risking $18.50 to make $31.5, not too bad at a 1.7x risk reward, but the ATM straddle is pricing for a 7.5% move on the stock or at $1245 per share that is a move of $93. The big level to watch is the $1175 area on the downside:

Finally we want to give you guys an overview of a covered call strategy, in particular and in relation to the MSTR Equity covered call strategy that we track for our subscribers each day. You should consult your brokerage firm on how they handle assignments and this is just a general explanation of how this type of strategy work:

How It Works

• Covered Call: When you sell a covered call, you own the underlying shares (e.g., 100 MSTR shares per call contract) that can be delivered if the option is exercised.

• In-the-Money at Expiration: If the call option is ITM (stock price > strike price) at expiration, the option buyer will likely exercise it, requiring you to deliver the shares at the strike price.

• Automatic Offset: Your broker will automatically assign your MSTR shares to fulfill the short call obligation. This process, called assignment, happens automatically at expiration for ITM options unless you close the position beforehand (e.g., by buying back the call).

  [You deliver the shares you own (100 per contract) to the option buyer.

  You receive the strike price per share (e.g., $400 per share for a $400 strike) plus keep the premium you collected when selling the call.

  Your long MSTR shares are removed from your account, closing your position in those shares.]

Key Points

1. Broker Handling: Most brokers (e.g., Fidelity, Schwab, Robinhood) automatically handle assignment at expiration. Your shares offset the short call, and no additional action is needed unless you choose to intervene.

2. No Margin Issues: Since your call is covered (backed by owned shares), there’s no risk of a margin call or forced liquidation, unlike with naked calls.

3. Exceptions:

   If you sell the shares before expiration without closing the short call, the call becomes naked (uncovered), which could lead to margin requirements or forced buy-in if assigned. Ensure you maintain the shares in your account.

   If the option is only slightly ITM, the buyer may not exercise (rare), but you should assume exercise for planning purposes.

4. Timing: Assignment typically occurs after market close on expiration Friday, with settlement (shares removed, cash credited) by the next business day (Monday).

Scenario

• Setup: You own 100 MSTR shares with a cost basis of $100 per share. You sold a weekly $400 strike call option for a $3 premium. On expiration Friday, MSTR settles at $435 (ITM by $35).

• Context: The option is in-the-money (ITM), as the stock price ($435) is above the strike price ($400). The current MSTR price is $434.58 (as of July 11, 2025).

Analysis

Since the call is ITM by $35, it is likely to be exercised unless you act. Your MSTR shares will automatically offset the short call option, and you will deliver the shares at the strike price ($400 x 100 = $40,000) and keep the premium ($300), totaling $40,300. Below are the strategic options:

1. Buy Back the Short Call

• Action: Purchase the $400 call to close the position, retaining your 100 MSTR shares.

• Cost: Approximately $3,500–$4,000 (intrinsic value of $35 + remaining time value).

• Pros: Retain shares for potential upside if you expect MSTR to rise further (year high: $543).

• Cons: Expensive if the option is deep ITM (e.g., $3,500 to buy back vs. $1,400 profit if shares are called away). Risk of further stock price drop if MSTR falls after expiration.

2. Let Shares Be Called Away

• Action: Allow the option to be exercised, delivering shares at $400 per share.

• Outcome: You receive $40,000 ($400 x 100) + $300 premium = $40,300, and your position is closed. You lock in a profit of $40,300 ($40,300 - $10,000 cost basis).

• Pros: Locks in profit without additional cost.

  Eliminates risk of further price drops post-expiration.

• Cons: Caps upside at $400; miss out on gains if MSTR rises further.

  Triggers capital gains tax if your cost basis is low.

3. Roll the Call

• Action: Buy back the $400 call and sell a new call (e.g., next week’s $410 or $420 strike) for a net credit or lower debit.

• Pros: Retains shares and potential upside.

  Can generate additional premium income.

• Cons: May result in a net debit if the new call’s premium is lower than the buyback cost. Requires active management of the position.

Recommendation

• Best Strategy: Given MSTR’s high volatility and correlation with Bitcoin, rolling the call to a higher strike (e.g., $420) for a net credit (~$1,800) is the best approach if you’re bullish, as it retains shares and allows for more upside potential. If you’re neutral or bearish, letting the shares be called away locks in a profit of $40,300.

• Key Factors:

  MSTR Volatility: MSTR’s price is highly volatile. Monitor Bitcoin’s price action to gauge potential swings.

  Tax Considerations: With a $100 cost basis, letting shares be called away triggers a $3,500 taxable gain per share, while buying back or rolling defers taxes.

  Broker Costs: Check your broker’s fees for assignment vs. buyback/roll costs.

Action: If you’re bullish, roll the $400 call to a $420 strike for ~$1,800 to retain shares and capture more upside. If you’re neutral, let the shares be called away for a $40,300 profit. If you’re bearish, buy back the call to avoid assignment and retain shares for potential future gains.

Note: Always consult your financial advisor before making investment decisions.

Anyway we hope this helps and we hope you see how a strategy like this could offer long term investor value, over just simple buy and hold strategies.

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