This example illustrates the Buy Back and Lower strategy historically. As the data shows, the strike price was lowered from $30
to $25 in September of 2005. When January 2006 arrived, the stock was still below the $25 strike and therefore the option simply
expired.
By using the strategy the writer was able to generate additional cash over the same time period.
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Systematic Covered Writing |
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. . . More than just covered calls . . . |
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SysCW Position Tracker |
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Historical Data |
Open Positions |
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msft |
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Stock |
Cash |
Total Cash |
Value as of |
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Date |
Strategy |
Status |
Position |
Investment |
Generated |
Generated |
15-Dec-06 |
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Ticker |
Current |
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Friday, December 15, 2006 |
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8-Jun-05 |
Initial Stock Purchase |
Buy 200 VRSN @ 30.80 |
($6,167.00) |
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$5,076.00 |
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VRSN |
200 |
25.38 |
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Current Price |
$25.38 |
VeriSign, Inc. |
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8-Jun-05 |
Initial Call Option |
Sell Jan $30 calls @ 4.60 |
Lowered 9/22/05 |
$910.46 |
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22-Sep-05 |
Buy Back & Lower |
Buy two Jan $30 calls @ .25 |
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($59.50) |
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22-Sep-05 |
Interim Trade |
Sell two Jan $25 calls @ .70 |
Expired 1/21/06 |
$130.49 |
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23-Jan-06 |
Interim Trade |
Sell two Jun $25 calls @ .95 |
Expired 6/17/06 |
$180.49 |
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15-Jul-06 |
Interim Trade |
Sell two Jan $25 calls @ .85 |
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$159.49 |
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Cash in Hand |
21.43% |
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$1,321.43 |
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#REF! |
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Another $25 call was sold, and that one expired in June. The current Jan $25 call was sold, and as of December 17th, the stock
is trading very close to the $25 strike. The writer will simply watch this position, with a 'line in the sand' approach.
What this means is the writer picks out a price . . . say $26.50 . . . where if the stock reaches that price the option is rolled
out and up using the Buy Back & Roll Out & Up strategy.
CONTINUED . . . April 17, 2007 - As you can see with the updated data below, the Jan $25 call also expired. It was replaced
with a Mar $25 call position, which also expired. The point is . . . even though the stock is not worth the original investment (a loss
in 'value'), the
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Systematic Covered Writing |
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. . . More than just covered calls . . . |
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SysCW Position Tracker |
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Historical Data |
Open Position |
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Stock |
Cash |
Total Cash |
Value as of |
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Date |
Strategy |
Status |
Position |
Investment |
Generated |
Generated |
17-Apr-07 |
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8-Jun-05 |
Initial Stock Purchase |
Buy 200 VRSN @ 30.80 |
($6,167.00) |
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$5,332.00 |
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Current Price |
$26.66 |
VeriSign, Inc. |
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8-Jun-05 |
Initial Call Option |
Sell Jan $30 calls @ 4.60 |
Lowered 9/22/05 |
$910.46 |
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22-Sep-05 |
Buy Back & Lower |
Buy two Jan $30 calls @ .25 |
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($59.50) |
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22-Sep-05 |
Interim Trade |
Sell two Jan $25 calls @ .70 |
Expired 1/21/06 |
$130.49 |
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23-Jan-06 |
Interim Trade |
Sell two Jun $25 calls @ .95 |
Expired 6/17/06 |
$180.49 |
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15-Jul-06 |
Interim Trade |
Sell two Jan $25 calls @ .85 |
Expired 1/19/07 |
$159.49 |
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22-Jan-07 |
Interim Trade |
Sell two Mar $25 calls @ .45 |
Expired 3/19/07 |
$80.49 |
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19-Mar-07 |
New Interim Trade |
Sell two Apr $25 calls @ 1.00 |
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$190.49 |
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17-Apr-07 |
Buy Back & Roll Out |
Buy two Apr $25 calls @ 1.61 |
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($331.50) |
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17-Apr-07 |
New Interim Trade |
Sell two '08 Jan $25 LEAPS @ 4.20 |
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$830.48 |
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Cash in Hand |
33.91% |
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$2,091.39 |
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PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN VRSN 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:
04/17/07