Systematic Covered Writing

 . . . more than just covered calls . . .

"Systematic Covered Writing is a series of strategies for long-term investors 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."

    Example Index

          ONXX     Onyx Pharmaceuticals, Inc.

THE POSITION DATE :    January 2006 to August 2007

THE STOCK: Onyx Pharmaceuticals, Inc (ONXX) is a biopharmaceutical company building an oncology business by developing therapies that target the molecular mechanisms implicated in cancer.

LATEST STRATEGY:  The Buy Back & Roll Out & Up

THE THEORY:   There will be times that a writer may elect to not only generate cash with the call options, but also possibly partake in the capital appreciation of the underlying stock.  Such is the case with this use of the SysCW BB&RO&Up strategy.

THE COMMENTARY:   Note that all transactions were sent to subscribers via email on the date that the trades were executed.

      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 15-Aug-07
3-Apr-07 Initial Stock Purchase Buy 200 ONXX @ 25.3599 ($5,078.98)     $6,532.00
  Current Price $32.66 Onyx Pharmaceuticals, Inc.        
3-Apr-07 Initial Call Option Sell two Aug $25 call @ 4.30   $850.48 Email 4/03  
8-Aug-07 Buy Back & Roll Out & Up Buy two Aug $25 calls @ 8.60   ($1,729.50)    
8-Aug-07 Appreciated Trade Sell two '09 Jan $30 LEAPS @ 13.30   $2,650.45 Email 8/08  
               
Cash in Hand 34.88%       $1,771.43  MR

Note that for this position, playing both sides of the fence (premiums and appreciation) can be justified by the fact that the investment has already generated over two years worth of cash, based on the 15% per year guideline.  The difference now is that rather than 'giving back' $36 if assigned, the position will generate an additional $464.  This is due to the fact that the strike price is now $30 instead of $25.

Because the 'math' worked, the strategy was used.  Is it possible that the deal would have been better had the writer waited until expiration week?  Yes . . . and no.  Keep in mind, the stock could have lost value, or the option could have been exercised. The point is . . . if the math works, don't worry about trying to make the trade 'perfect'. To the writer, 34.88% in the hand along with a strike price that is $4.64 above the purchase price is a clear example of the math working.

Your comments, questions, and or concerns are always welcome!   rlcoveru@wavecable.com

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN ONXX STOCK OR ANY OTHER EQUITY.  THE INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY.  THERE IS NO GUARANTEE THAT SIMILAR TRANSACTIONS CAN BE EXECUTED IN THE FUTURE. INVESTING IN THE STOCK MARKET INVOLVES RISKS, DO SO ONLY WITH A KNOWLEDGE AND UNDERSTANDING OF THE RISKS INVOLVED!

The information provided above is for informational purposes only, and no mention of a particular security constitutes a recommendation to buy, sell, or hold that or any other security, or that any particular security, portfolio of securities, transaction, investment strategy is suitable for any specific person. You further understand that the Covered Writer will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information available on this website may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Always remember that past results are not necessarily indicative of future performance.

These are the terms of use.  Why are they here?  Because the examples provided are real.  The transactions actually took place.  The dates are real, the positions are real.  Some transactions will have been executed on the day you receive the email.  What you are agreeing to, is the fact that in no way is it being suggested that you can, or should, enter a similar position.  Why?  Because that would be providing investment advice and the Covered Writer is not authorized to do that.  There is also no guarantee that similar transactions could be executed at any time in the future. Only licensed brokers are allowed to provide investment advice.  Therefore, you are agreeing that the preceding example was provided for 'educational purposes' for the sole purpose of illustrating the Systematic Covered Writing strategies.

Enjoy!

SYSTEMATIC COVERED WRITING
Copyright © 2007. All rights reserved.
Revised: 08/16/07