Systematic Covered Writing

. . . more than just covered calls . . .

Buy Back & Lower MYOG  - May 2006

This example illustrates the Buy Back and Lower strategy historically.  As the data shows, the strike price was lowered from $30 to $25 in May 2006.  Two months later the trade was reversed by using the Buy Back & Roll Out & Up.  Note that this is a case where the strategy of lowering the strike price did not work. The position worked out fine for the writer no sooner increased the strike price, than Gilead decided to buy out Myogen.

By using the strategy the writer was able to generate additional cash over the same time period, but the drawback is the writer had to buy it back as the stock moved above the lowered strike.

      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 17-Nov-06
23-Jan-06 Initial Stock Purchase Buy 100 MYOG @ 37.3399 ($3,740.99)     $5,247.00
 Current Price

$52.47

MYOGEN INC        
23-Jan-06 Initial Call Option Sell Sep $35 calls @ 9.40 Lowered 5/22/06 $931.72    
7-Apr-06 Initial Stock Purchase Buy 100 MYOG @35.45 ($3,546.00)     $5,247.00
7-Apr-06 Initial Call Option Sell Sep $35 calls @ 6.20 Lowered 5/22/06 $619.00    
22-May-06 $7,286.99 200 @ 36.61 Combine 200 Share position        
22-May-06 Buy Back & Lower Buy two Sep $35 calls @ 1.95   ($391.50)    
22-May-06 Interim Trade  Sell two Sep $30 calls @ 2.55 Rolled 7/25/06 $508.50 Email 5/22  
25-Jul-06 Buy Back & Roll Out &Up Buy two Sep $30 calls @ 3.80   ($770.50)    
25-Jul-06 Continued Trade  Sell two '08 Jan $35 LEAPS @ 8.10   $1,609.45    
               

 Cash to Date

 34.40%       $2,506.67  

It is very important to understand that the Buy Back & Lower strategy is 'cool' when it works, but when the stock moves up, the strike must be increased.  It is almost always the case that if this happens, the position would have generated more if the strategy had not been used.

Liken this to the base ball hitter where the pitcher threw more balls than strikes. If you never swing the bat, you will never hit a double, on the other hand if you just stand there,  you will make it to 1st.

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

The Covered Writer

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN MYOG 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! STRATEGIES INVOLVING TAX ISSUES SHOULD BE DISCUSSED WITH YOU TAX PROFESSIONAL.

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!

SYSTEMATIC COVERED WRITING
Copyright © 2006. All rights reserved.
Revised: 02/05/07