JCOM - Buy Back & Roll Out & Up

This SysCW BB&RO&Up example was emailed to subscribers on the day the transactions were executed. In order to know what to do in the future, it is important to understand what we did in the past. Recovering occurs each time an option expires, even when a stock loses value. This is a key philosophy of the Systematic Covered Writing process. Writers will profit from stocks that appreciate, and they will also generate addition cash with the stocks that lose value. Then, at some point in time, the strike price is increased, which is the purpose of the Buy Back & Roll Out & Up strategy.

This position is in the 100k Portfolio. The stock is trading above the Dec $32.50 Initial Call Option strike price, which leads to a decision for the writer. Does one allow the stock to be assigned, or protect the position? The answer lies in maintaining sector diversification. What other metal stock would be better than TIE? (The writer does not know either, so let’s keep it!)

With the thought in mind that on a pre-2:1-split basis, TIE was trading at over $80 a share earlier this year, the writer is under the impression that this stock has reasonable upside potential. The result of increasing the strike price puts this holding in an Appreciated Trade status, which means that IF the option is exercised, additional cash will be generated when the stock is sold.

The Position Tracker data can be found below the Math Exercise so that you can see how the record of this position is maintained. You will also see it later today as the online portfolio is updated.

Enjoy your day . . .and profit from it!

Systematic Covered Writing
… more than just covered calls!

Buy Back & Roll Out & Up: Math Exercise

Date of Transaction	Wednesday, December 06, 2006

Stock Symbol	TIE		Current Price	$33.40

Number of Shares	100

Net Investment	$3,335.00	Existing January Strike Price		$32.50

Net Cash Generated (1)	$671.72

Strategy: Use the Systematic Covered Writing BB&RO&Up strategy.

Purpose: Prevent an existing option from being exercised and generate cash
and attempt to partake in potential capital appreciation of the underlying stock.

Step 1: The Buy Back	Net cash used to close Dec $32.50 call			$198.25

Step 2: The Roll Out	Net cash received from the sale of Jun $35 call			$461.73

Step 3: The Cash Generated	Net result of the Buy Back & Roll Out & Up			$263.48	(A)

Total Cash Generated to Date			$935.20

Net Percentage of the Investment Generated (2)			28.04%

Net Back to cash Gain if this New Option is Exercised			$1,083.20	(B)

Net Back to Cash Percentage Gain if Exercised (3)			32.48%

Comment: In order to enter transactions, two events should be considered. One is the
amount of new cash generated via the strategy and the other is knowing what the end
result would be if the new call is exercised. Those two amounts are listed above as
(A) and (B). Do the math first . . . then do the transactions if they are merited!




(1) This is the total net cash generated from all previous activity with this position.

(2) This percentage is not a profit percentage. It is simply the premiums generated
to date, divided by the net investment.

(3) Because the proceeds received if the option is exercised is an amount that can be precisely calculated, the net back to cash amount can be calculated. Dividing that amount by the net investment yields the net percentage gain. This is not an annualized amount because the data does not indicate the duration of the position.

Conclusion: By increasing the strike price, a total of				$250.00
will be added to the amount received if the current option is exercised. By choosing to 'do something' a covered writer may be able to partake in the capital appreciation of an underlying stock.

As far as why 'today' and not two weeks from now? Good question . . . and so is the answer! The position is rolled today because the math works. The thought of it possibly working better in a couple of weeks is an IF, and the idea is to stay away from as many IFS as possible. For example . . . what would happen of this stock 'tanked' over the next two weeks due to some newsy event?

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN TIE 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 suggesting 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 provide for 'educational purposes' for the sole purpose of illustrating the Systematic Covered Writing strategies.