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 for the SysCW process?

ONXX ONYX Pharmaceuticals Inc.

THE DATE: July 24, 2006

THE STOCK: ONYX Pharmaceuticals Inc. - (ONXX) This company discovers and develops novel cancer therapies and has proprietary technologies that target the molecular basis of cancer.

COMMENTARY: The Buy Back & Lower strategy was used in June 2006, and the option that was sold expired on November 11, 2006. The thought behind the strategy is to generate additional cash, rather than just 'waiting', which is the other choice

			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
25-Jan-05	Initial Stock Purchase		Buy 100 ONXX @ 29.199	($2,926.90)	TDS Used		$1,802.00
	Current Price	$18.02	Onyx Pharmaceuticals, Inc.
25-Jan-05	Initial Call Option		Sell Aug $30 call @ 5.70	Expired 8/20/05	$561.73
9-Mar-05	Initial Stock Purchase		Buy 100 ONXX @ 25.319	($2,538.90)	TDS Used		$1,802.00
9-Mar-05	Initial Call Option		Sell Aug $25 call @ 5.80	Expired 8/20/05	$571.73
Combined	$5,465.80	200 @ $27.51	Combined Position
22-Aug-05	Interim Trade		Sell two Jan $25 calls @ 1.70	Rolled 1/13/06	$330.48
13-Jan-06	Buy Back & Roll Out &Up		Buy two Jan $25 calls @ 2.45		($499.50)
13-Jan-06	Appreciated Trade		Sell two '07 Jan $30 LEAPS @ 5.80		$1,150.46
23-May-06	Buy Back & Lower		Buy two '07 Jan $30 LEAPS @ 2.10		($429.50)
23-May-06	Continued Trade		Sell two Nov $25 calls @ 2.40		$470.50	Email 5/23
22-Jun-06	Buy Back & Lower		Buy two Nov $25 calls @ .40		($89.50)
22-Jun-06	Interim Trade		Sell two Nov $20 calls @ .95	Expired 11/18/06	$180.49
20-Nov-06			Recover pending . ...
	Cash in Hand	41.11%				$2,246.89

Here is an example where the Buy Back & Lower strategy worked as planned. The original call was the Nov $25, which was sold on May 23, 2006. In June, the price of ONXX had dropped, and the writer decided to add some cash to this portfolio at that time. Keep in mind the BB&Lower strategy is a two edged sword! If the lower option expires . . . the strategy works. If the lowered option needs to be rolled, the writer would have been better off sticking with the previous strike price. Please use caution when using this strategy!
With that said . . . look at the two possibilities the writer was faced with in June of 2006.

The Nov $25 call was in place and the writer could have elected to just let the option run it's course. In hind sight, we now know that this strike price was higher than the trading price in November, so the option would have expired. With this plan . . . the writer would have the 100 shares of stock and $470.50 in premium received from the sale of that Continued Trade option.

The writer decided to Buy Back the Nov $25 call and sell the Nov$20 call in order to add a little cash to the position. Note . . . $89.50 was used to close the $25 strike and $180.49 was received for the $30 strike. The net difference of $90.99 was added to the account on June 22, 2006.

So . . . rather than doing nothing . . . the position generated an extra $90.99 over the same time frame.

Now there are some that would want to talk about commissions and extra work and all the other excuses folks come up with for not doing this or that, but the writer always looks at it in the following manner. If you walked out the front door and there was $90.99 in cash lying on the ground . . . would you pick it up? . . . Well, . . . so would I!

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN ONXX 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!
SYSTEMATIC COVERED WRITING
Copyright © 2005. All rights reserved.
Revised: 02/05/07