The math tells the story of why this stock was selected. Significant downside protection was generated along with a nice back-to-cash return if the option were to be exercised.
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to do just that . . .
Systematic Covered Writing
. . . more than just covered calls . . .
"Systematic Covered Writing is a series of strategies for long-term investors (covered writers) that believe nobody really consistently knows which stock is going to appreciate at any particular point in time. They also believe there are a limited number of possible overall changes in any individual stock's value during a specified period of time and that someday the value of a stock will be higher than when it was originally purchased. Lastly, they understand that their wealth is not emotionally connected to any individual stock held within the portfolio."
Taking Losses . . . . NOT!
The math tells the story of why this stock was selected. Significant downside protection was generated along with a nice back-to-cash return if the option were to be exercised.
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| Systematic Covered Writing | |||||||||||
| … more than just covered calls! | |||||||||||
| Initial Position: The Math Exercise | |||||||||||
| Position: | 100 ISIS with Apr $10 Call | ||||||||||
| Stock Symbol | ISIS | Call Symbol | QISDB | ||||||||
| Stock Purchase Price | $11.090 | Call Sold Price | $5.10 | ||||||||
| Number of Shares | 100 | Call Strike Price | $10.00 | ||||||||
| Trade Entry Date | 21-Aug-02 | Expiration M & Y | 4 | 2003 | |||||||
| Net Cash Generated | $457.43 | Net Stock Investment | $1,144.54 | ||||||||
| Net Return if Called | $295.89 | Annualized if Called (1) | 39.32% | (A) | |||||||
| Cash Required for Trade | $687.11 | ||||||||||
| Percentage Recovered w/Option * | 39.97% | (B) | |||||||||
| Days Until Expiration & Expire Date | 240 | 18-Apr-03 | |||||||||
| * The net cash generated divided by the net cash invested. This is the 'downside protection'. | |||||||||||
| This is not a profit percentage. It could be called the 'Stock Ownership Risk Reduction Percentage'. | |||||||||||
| (1) The Annualized percentage rate is calculated by dividing the Net Return if Called by the Net Stock Investment | |||||||||||
| and expressing the result as a percentage. This is the return for the period. Now divide this percentage by the | |||||||||||
| duration of the trade in days and multiply the result by 365 to 'annualize the return'. | |||||||||||