CECO BB&Lower

Systematic Covered Writing

... more than just covered calls!

Buy Back & Lower Example

The Buy Back & Lower strategy is one to be used by those writers who are willing to increase the risk on a given position. It is an important Systematic Covered Writing strategy as it allows a writer to add additional cash to a position over the same period of time. Caution should be used, for if the stock appreciates above the lowered price, action will be needed to prevent the stock from being sold at the lower price. But . . . that's one of the reasons there is a Buy Back & Roll Out & Up strategy. So . . . this is the 'Do you feel lucky?' strategy that is used under the SysCW philosophy?

CECO Career Education Corp.

DATE: November 20, 2006

The Email Commentary:

"Here is a case where the writer is attempting to add additional cash to a position where the stock has lost value since the last call was sold. Some may say this is a lot of work for $61, and in a sense . . . they may be correct. BUT . . . (this is what the writer is always going to come back with) . . . IF you were walking out your front door, and $61 was laying there, would you pick it up? If this stock is trading below $30 in January . . . then picking up the $61 will look like a good idea. If the stock is above $30, it would have been better for the writer to keep walking!

As long as the writer can touch toes, picking up some extra premium here and there will be part of the SysCW philosophy.

The Covered Writer


Systematic Covered Writing
… more than just covered calls!


Buy Back & Lower: The Math Exercise


Current Position:	200 CECO with Jan $35 calls

Original Position Established:		July 18, 2005

Stock Purchase Price	$41.060		Current Price		$25.90

Number of Shares	200		Generated to Date		$1,784.42

Current Strike Price	$35		Current Ask Price		$0.10

Replacement Strike	$30		Current Bid Price		$0.50


	Cost to close existing option				$29.50

	Proceed from replacement option				$90.50

	Net BB & Lower result				$61.00

Adjusted total cash generated			$1,845.42	(Total downside protection.)

Net gain if exercised			($390.58)

Net Percentage gain if exercised			-4.75%

CAUTION: Nobody knows! If the stock is below the lowered strike price on expiration Friday, additional cash would have been generated over the same holding period. (Extra cash is good!) On the other hand, if the stock recovers and is trading above this "lowered" strike price, then the position would normally need to be rolled. The point . . . If this happens a covered writer would have been better off not using the strategy.

Purpose: The idea behind this strategy is to try and increase the amount of cash generated per unit of time. The expiration month remains the same, but with a lower strike price. This strike price must be above the current trading price of the underlying stock, and one high enough that the writer does not 'think' the stock will reach. If the strategy "works", the writer will have more cash than if he or she had done nothing. If the strategy does not work, the writer will wish the strike had not been lowered! There are two possible outcomes. The question becomes . . . do you feel lucky?

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN CECO 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.

Thank you!