THE DATE: November 16, 2006

THE STOCK: Telik Inc. - This biopharmaceutical company works to discover, develop and commercialize innovative small molecule drugs to treat diseases.

THE STRATEGY: The Buy Back & Roll Out strategy is used to increase the amount of cash the position has generated.

THE COMMENTARY: What should a writer do with current TELK positions?  This is a tough question to answer as the Bid and Ask for various strike prices, particularly for January 2007, contain an unusual amount of extrinsic value.  For example, positions can be established in November 2006, with the same premium as was available in January 2006.  Keep in mind, this is with the stock trading at about the same price.

This is VERY unusual.  The writer's guess is there is a lot of Phase Three drug trial 'hype' being built into the options.  Please note that the writer does not profess to know one way or the other, but obviously something is brewing over the next couple of months.  Now, add to the mix that in November, one of the analyst that follow this stock downgraded it, and established a new twelve month price target of $11.00!  Could he be right?  Yes, no, maybe so! Analyst have been wrong in the past, and will be wrong in the future.

Look at it this way, if he is right . . . all the investors that are buying the January call options are going to lose their . . . . (money). So . . . what should a covered writer do?  Again, there is no pat, or even correct answer to this question.  The approach the covered writer uses is based on this thought process:

1. Make a decision based on exploring the math of being called or not called.

2. Check to make sure the results of the decision fall within the investing guidelines established for the portfolio.

3. Then . . . make the decision, based on the math . . . understanding the effects of the decision, over both a short, and longer term time frame.

4. Finally, live with that decision (based on math), and don't try to second guess the transactions.  One can go 'nuts' trying to figure out the 'best' way to trade a position if should-a-would-a-could-ofs are allowed to occupy the thought process.

Having said that . . . here are the current TELK holdings in the 100k Portfolio:

			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	22-Nov-06
10-Oct-05	Initial Stock Purchase		Buy 200 TELK @ 15.5386	($3,114.72)			$3,550.00
	Current Price	$17.75	Telik, Inc.
10-Oct-05	Initial Call Option		Sell two '07 Jan $15 LEAPS 4.70		$930.46
	Cash in Hand	29.87%				$930.46
3-Mar-06	Initial Stock Purchase		Buy 100 TELK @ 21.5785	($2,164.85)			$1,775.00
	Current Price	$17.75	Telik, Inc.
3-Mar-06	Initial Call Option		Sell Jan $20 call @ $7.90		$781.72
7-Sep-06	Initial Stock Purchase		Buy 200 TELK @ 17.5774	($3,522.48)			$1,775.00
	Current Price	$17.75	Telik, Inc.
7-Sep-06	Initial Call Option		Sell two Jan $17.50 calls @ 4.30		$850.47	Email 9/07
16-Nov-06	Buy Back & Roll Out Lower		Buy Jan $20 call @ 4.70		($478.25)
16-Nov-06	Buy Back & Roll Out		Buy two Jan $17.50 calls @ 5.80		($1,169.50)
Combine	$5,687.33	300 @ $19.08	Combined 300 Share Position
16-Nov-06	Interim Trade		Sell three '08 Jan $17.50 LEAPS @ 7.30		$2,179.18	Email 11/16
	Cash in Hand	38.04%				$2,163.62
6-Nov-06	Initial Stock Purchase		Buy 100 TELK @ $18.924	($1,899.40)			$1,775.00
	Current Price	$17.75	Telik, Inc.
6-Nov-06	Initial Call Option		Sell '08 Jan $17.50 LEAP @ 7.30		$721.72	Email 11/06
6-Nov-06			Accounting
	Cash in Hand	38.00%				$721.72

For the first 200 shares, the writer is ignoring the recent (November 2006) commentary from the analyst that thinks this stock is going to tank.  Way?  Because if it's trading at say $11 in January, the existing call will expire, and the writer will simply recover the position.  The stock price will end up being the stock price, and the writer is simply not going to 'worry' about it.  Note that over 29% has already been generated, which happens to be almost two years worth of the cash generating 'objective'.  The writer is thinking that TELK should be okay once the supposed 'bad news' plays out.

For the next 300 shares, the writer decided to hedge on the side of caution.  Note that two separate holdings were combined in November, with both existing  calls being closed, and replaced with the 2008 Jan $17.50 LEAP option contracts.  The 'math' says the position has generated over 38% so far, which again, fits the investment objectives. The 'thinking' goes down two paths:

1. If the analyst is incorrect and TELK holds at the current level, it is not like something 'bad' occurs, other than the the position is already rolled to 2008.  Is it possible that a greater premium 'could have' been generated by waiting?  Yes, maybe, but remember . . . the decision was made, and a writer should cease to concern themselves with whether on not it was the best possible transaction.

2. On the other hand, TELK could lose significant value to where there would be no way to generate the same amount of cash and remain at the $17.50 strike price.  Understand that now that this option is rolled out to January 2008, which means that where the stock is in 2007 is not a concern.  The cash has already been generated.  Again . . . this is not 'bad', but it would validate the decision to roll the position now.

It is hoped that writers realize there is no 'best' involved.  The writer is not try to make the best trade possible, but rather justify the transactions that take place based on the math involved.

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For the final TELK position, the stock is already covered with a 2008 LEAP, so nothing needs to be done.  What would happen if the stock really does lose value?  One possibility would be to use the Buy Back & Lower strategy if the news is so bad that a $15 strike price seems reasonable. For the last four-hundred shares that were purchased, the writer does not want to sell the stock for less than $17.50.

How various TELK positions are traded over the next few weeks will be up to the writers.  It is suggested  what ever decision is made, that it is based on an evaluation of the math involved in the position. Other TELK activity will take place between now and January 2007.  In executing the transactions, the thought processes mentioned above will be the stimulus behind any activity.

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

The Covered Writer

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