THE DATE: October 21, 2006

THE STOCK: CHINA - was established in February of 2004 when the stock was trading at over $11.

THE STRATEGY: The strategy illustrated in this example is Dollar Cost Averaging.  One needs to consider this when evaluating selling a position at a loss. This comes to light because here we have a stock that traded below $3 a share even though the original purchase was at $11.  If the writer had elected to 'bail' on this position, the loss would need to be made up just to be even.  Every time a new stock is selected, it may or may not appreciate.  The covered writer's thought is that a stock that has already been 'hammered' has more chance of appreciating that some 'new' position given that the nobody knows factor is a 'given'.

When this position is closed at a profit . . . someday . . . the only loss will have been in the 'value' of the stock during the holding period.  Being as writer's cannot control 'value', why not control the process?

THE COMMENTARY:  Once again, the benefit of Dollar Cost Averaging should be obvious from the Position Tracker data.

			Systematic Covered Writing
			. . . More than just covered calls . . .
		SysCW   Position Tracker
Historical Data			Open Positions
				Stock	Cash	Total Cash	Value as of
Date	Strategy	Status	Position	Investment	Generated	Generated	20-Oct-06
26-Feb-04	Initial Stock Purchase		Buy 100 CHINA @ 11.78	($1,185.00)			$662.00
	Current Price	$6.62	CDC Corporation
26-Feb-04	Initial Call Option		Sell Sep $10 call @ 3.20	Expired	$311.48
21-Sep-04	Dollar Cost Averaging		Buy 100 CHINA @ 5.32	($539.00)			$662.00
$ CA	1,724.00	200 @ $8.62	Combined Position
21-Sep-04	Continued Trade		Sell two Mar $7.50 calls @ .45	Expired 3/19/05	$79.99
29-Sep-05	Dollar Cost Averaging		Buy 200 CHINA @ 3.60	($727.00)			$1,324.00
$ CA	2,451.00	400 @ $6.13	Combined Position
29-Sep-05	Interim Trade		Sell four '07 Jan $5 calls @ .65		$247.98
	Cash in Hand	26.09%				$639.45

Several key thoughts are revealed with this position:

♦   Not only did the writer average the price when the stock was at $5.32, it was repeated when it was at $3.60!

♦   Note that with two Dollar Cost Averaging additions, the cost basis is below the current trading price.

♦   Even though the stock is trading above the current strike price ($5), the call options have not been exercised.

♦   If the writer can roll the $5 option to $7.50, the position will change for 'Interim' to 'Appreciated' because at $7.50, the strike price would be above the $6.13 cost basis.

If the strike cannot be rolled Out & Up, then possibly a Combo strategy may be in order. In this case it really depends on what the stock price does over the next two months.  Again . . . not the best position in the world, but still . . . not a loss.

Comments, questions and opinions are always welcome . . . rlcoveru@wavecable.com

The Covered Writer

_____Update   2007____

The data, then the comments!

			Systematic Covered Writing
			. . . More than just covered calls . . .
		SysCW   Position Tracker
Historical Data			Open Position
				Stock	Cash	Total Cash	Value as of
Date	Strategy	Status	Position	Investment	Generated	Generated	24-Jan-07
26-Feb-04	Initial Stock Purchase		Buy 100 CHINA @ 11.78	($1,185.00)			$1,012.00
	Current Price	$10.12	CDC Corporation
26-Feb-04	Initial Call Option		Sell Sep $10 call @ 3.20	Expired	$311.48
21-Sep-04	Dollar Cost Averaging		Buy 100 CHINA @ 5.32	($539.00)			$1,012.00
$ CA	1,724.00	200 @ $8.62	Combined Position
21-Sep-04	Continued Trade		Sell two Mar $7.50 calls @ .45	Expired 3/19/05	$79.99
21-Sep-04
29-Sep-05	Dollar Cost Averaging		Buy 200 CHINA @ 3.60	($727.00)			$1,012.00
$ CA	2,451.00	400 @ $6.13	Combined Position
29-Sep-05	Interim Trade		Sell four '07 Jan $5 calls @ .65	Rolled 12/20/06	$247.98	SysCW 145
20-Dec-06	Combo Buy Back & RO&Up		Buy four Jan $5 calls @ 3.67		($1,480.00)
20-Dec-06	Dollar Cost Averaging		Buy 100 CHINA @ 8.6299	($829.99)			$1,012.00
$CA	$3,280.99	500 @ $6.56	Combined 500 Share Position
20-Dec-06	Appreciated Trade		Sell five '08 Jan $7.50 LEAPS @ 3		$1,486.70
	Cash in Hand	19.69%	This is a Web Portfolio			$646.15

Look at the purchase price of the original shares . . . $11.78 . . . and then look at the third purchase . . . $3.60 . . . and then (please) consider this:  The covered writer does not care what the price of the stock is, so long as someone will pay because it is owned! Then, with the effective use of Dollar Cost Averaging realize that this is the current situation:

• The writer owns 500-shares of this stock with a net cost basis of $6.56. 

• The current strike price is $7.50.

• The current stock price is $10.12! . . . Dollar Cost Averaging works  . . . as long as the time horizon is long enough.

• IF this stock were to be sold at the $7.50 strike price, the position would generate approximately $485 in additional profit.

Losing positions are only losers is the investor quits.  The problem with quitting, is you have to bet again . . .then what if that one loses?  Please note that the writer has no crystal ball.  The future will be the future, and the writer tends to use the data from the past as a road map for the future.

Cool . . . . a matter of opinion!

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