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.
|
KCI
Kinetic Concepts, Inc. |
THE TRADE DATE : September 28, 2007
THE STOCK: Kinetic Concepts, Inc. (KCI) is a global medical technology company that manages advanced
wound care and therapeutic surfaces
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, this writer tends to establish longer term holdings
for reasons that have been explained previously. One of the benefits of the SysCW process is the added cash 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: There
are times when cash may be needed from a portfolio. This position was closed early to provide cash for withdrawal. There is
some give back here, as the trade would have generated more if held to maturity, AND if the price remained above the $50 strike price.
That is fine and dandy, but rather than worry about potential profit 'lost', the position provided cash for the investor. After all,
is not that the ultimate purpose of investing in the first place?
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 KCI 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:
12/07/07
