AGIX 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?

NTRI NutriSystem Inc.

DATE: December 30, 2006

The Email Commentary:

In January, the writer recovered a 100 share NTRI position with a Jun $60 call. This transaction was sent to subscribers on January, 19, 2007. Today the writer used the BuyBack & Lower strategy to increase the cash generated by this position. With the stock trading at $44, the writer decided to close the Jun $60 and open a Jun $50 as a replacement. The spread was $1.80 and the new strike price is $6 above the current trading price.

Always remember that the BB&Lower strategy is awesome if the new strike price is above the trading price at expiration. On the other hand, if the stock recovers and the option is rolled, the investor would have been better off without this strategy. The writer is feelin’ frisky . . . the transactions were executed.

Do note that even with the lowered strike, this position would end with a satisfactory back to cash gain!

The Covered Writer

Additional Comments: The email message provided the Math Exercise. Here we have all the data for the position as maintained in the Position Tracker. Suggestion - when looking at a historical example, why not look at a historical chart so that you can see how the stock was behaving when the transactions were taking place. I think that would add a little more 'reality' to the example.

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

2-Mar-07

13-Jun-06

Initial Stock Purchase

Buy 100 NTRI @ 57.78

($5,779.00)

$4,391.00

Current Price

$43.91

NutriSystem Inc.

13-Jun-06

Initial Call Option

Sell Jan $55 call @ 13.60

Rolled 1/19/07

$1,359.00

19-Jan-07

Buy Back & Roll Out &Up

Buy Jan $55 call @ 7.30

($738.25)

$1,547.02

19-Jan-07

Appreciated Trade

Sell Jun @60 call @ 9.50

Lowered 3/2/07

$941.72

Email 1/19

2-Mar-07

Buy Back & Lower

Buy Jun $60 call @ .70

($74.75)

2-Mar-07

Interim Trade

Sell Jun $50 call @ 2.50

$245.24

Email 3/02

Cash to Date

29.99%

$1,732.96

Note that in January of this year, the stock was trading above $55 and the writer decided to roll the option up. This was done based on the desire to maintain this position past the January expiration. Being as the position has been in the portfolio since June (eight months), the writer is just fine with the 29.99% cash generation rate. Every time you look at one of these example, look at the current value as of the date the example was posted. In this case, that is today!

Here we go again . . . the value issue . . . The reason this is mentioned so often is to help maintain the focus. With most strategies that lose value, one has to wait just to get back to even. Hope you can see that the writer was paid $170.49 in additional cash in spite of the change in value. The duration of the new strike price is still June, and the strike is $6 ahead of today's closing price. Why not take the extra money?

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 NTRI 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!