DNDN - Close it or Wait

Systematic Covered Writing

... more than just covered calls!

Close it or Wait Example

This is the 'go back to cash' Systematic Covered Writing strategy, which is respectfully named "Close it or Wait". There may be times when cash is needed for a variety of reasons, or it is possible that a stock has significantly appreciated, and the question becomes, should the writer wait for expiration, or should the writer just go back to cash.
As with all SysCW examples, the transactions listed within the information that follows, took place on the dates listed. It is important to note that historical executions of various transactions and strategies may, or may not, be repeatable in the future. On the other hand . . . how many of these do you need to see to 'believe'?
"REALITY: It is only when a position goes back to cash that the actual 'profit' or loss can be determined. This truly is a case of 'it's not over until it's over". During the active holding period of a position, cash is generated, and when the position is closed, the net result of buying and selling of the stock is factored into the 'cash generation' total for each closed position. The total amount generated divided by the total investment determines the net profit for the period.

DNDN Dendreon Corporation

THE TRADE DATE : June 26, 2007

THE STOCK: Dendreon Corporation (DNDN) is a biotechnology company focused on the discovery, development and commercialization of therapeutics that harness the immune system to fight cancer.

THE STRATEGY: Close it or Wait?
THE THEORY: This example is an illustration of position management using Systematic Covered Writing strategies. More often than not, the writer will establish long-term covered positions. While some strategist suggest short-term positions with the requirement that they need to be repeated continuously in order to generate the 'expected' yearly profit, the writer tends to establish longer term holdings for reasons that have been explained previously. One of the benefits of the SysCW process is added cash that is generated at the time the options are sold can be combined to establish additional Initial Positions to further compound the cash generation process.
You will find two sections on this Web site to view Closed Positions. One is this one, where a given position is manually closed by buying back the exisiting call option, and then selling the underlying stock. The other Closed Positions can be found in the Assignment section. The call options are allowed to be exercised on or before expiration and the underlying stock is sold at the specified strike price. Either way, the position is back-to-cash, which means the actual profit for both the period and on an annualized basis can be determined. Please note . . . the shorter the duration, the less reliable the annualized rate of return.
THE COMMENTARY: Call it good, call it bad, for sure . . . call it volatility. When one uses small cap drug stocks as part of an allocated portfolio, he or she should be willing to accept wild fluctuations in price. Here we have a case where DNDN appreciated from $4.94 to $18.91 in 49 days. The simple solution . . . take the money and run. As you can see the annualized rate of return is phenomenal, the only problem is . . . it is probably not repeatable.

			Systematic Covered Writing
			. . . More than just covered calls . . .
			SysCW Position Tracker

Historical Data			Closed Position
				Stock	Cash	Total Cash	Annualized
Date	Strategy	Status	Position	Investment	Generated	Generated	Gain
22-Feb-07	Initial Stock Purchase		Buy 200 DNDN @ 4.9379	($997.57)
			Dendreon Corporation
22-Feb-07	Initial Call Option		Sell two May $5 calls @ 1.55		$298.50
12-Apr-07	Buy Call to Close Option		Buy two May $5 calls @ 14.01		($2,831.49)
12-Apr-07	Sell Stock to Close Position		Sell 200 DNDN @ 18.9136	$3,772.67	$2,775.10		DA
12-Apr-07			Net Cash Gain			$242.11	Annualized
49	Days		Net Percentage Gain			24.27%	180.79%

When stocks appreciate significantly, there is nothing wrong with closing the position and beginning the process over again with another stock. As of August 4, 2007 DNDN continues to be used as an SysCW covered call position, and is currently trading in the $7.50 range.
Your questions, comments, and or opinions are always welcomed and encouraged. rlcoveru@wavecable.com

PEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN DNDN 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 © 2006. All rights reserved.
Revised: 08/05/07