AGIX and Dollar Cost Averaging

Systematic Covered Writing

... more than just covered calls!

Dollar Cost Averaging is an important Systematic Covered Writing strategy. Having something to do, other than giving up, when a stock loses value allows writers to cope with an ever changing market place. Some would say to just dump the losers and move on. Many actually follow that philosophy, and the covered writer believes there are two reasons why this is so:

It is the only 'plan' they have.

They somehow think they will be 'right' with the next selection.

If there is no 'plan', what else would an investor do? Many will continue to use stop losses or exit strategies. The SysCW philosophy is to have a plan, and this is another example of this plan in action. Some examples will be cases where the Dollar Cost Averaging strategy was the latest strategy implemented, while others will illustrate the benefits of the strategy as the position continues to generate additional cash.

AGIX - Dollar Cost Averaging Example

THE DATE: August 31, 2007

THE STOCK: AtheroGenics Inc. is a research-based pharmaceutical company. It is focused on the discovery, development and commercialization of drugs for the treatment of chronic inflammatory diseases, including coronary heart disease (CHD), organ transplant rejection, rheumatoid arthritis and asthma.
EXAMPLE TYPE: This is an example of the Dollar Cost Averaging strategy of SysCW. It is also an example of why the writer suggests using caution with the Buy Back & Lower strategy. When the latter strategy works . . . all is good and extra cash is generated over the same amount of time. On the other hand . . . when the strategy does not work . . . there needs to be a plan.

COMMENTARY: First, was the Buy Back & Lower a mistake? The writer's answer is NO . . . if you never swing the bat, you will never hit a double. Next question . . . did it work? As of this moment in time, the answer is also NO, which is why today's activity took place.
One other thought before we get into the meat of this example. On August 16, 2007, AGIX traded as low as $1.04 per share! Today, on August 31, 2007 it is trading at $2.70, which means it is up over 159% in two weeks. Why? Because there is news out about one of their drugs.

			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	Generated	31-Aug-07
17-Nov-06	Initial Stock Purchase		Buy 300 AGIX @ 12.89	($3,874.00)			$801.00
	Current Price	$2.67	AtheroGenics Inc
17-Nov-06	Initial Call Option		Sell three Jan $12.50 calls @ 3.30		$979.21	Email 11/17
12-Dec-06	Buy Back & Roll Out		Buy three Jan $12.50 calls @ 2.10		($640.75)
12-Dec-06	Continued Trade		Sell three '08 Jan $12.50 LEAPS @ 6.50		$1,939.19	Email 12/12
3-Apr-07	Buy Back & Lower		Buy three '08 Jan $12.50 LEAPS @ .20		($70.75)
3-Apr-07	Interim Trade		Sell three '08 Jan $2.50 LEAPS @ .80		$229.24
31-Aug-07	Dollar Cost Averaging		Buy 300 AGIX @ 2.67	($808.00)			$801.00
$CA	$4,682.00	600 @ $7.80	Combined 600 share position
31-Aug-07	Combo Buy Back & Roll Out & Up		Buy three Jan $2.50 calls @ .65		($205.75)
31-Aug-07	Continued Trade		Sell six '09 Jan $7.50 LEAPS @ .80		$465.48

	Cash in Hand	57.58%				$2,695.87	BQ

With the above data in mind . . . you obviously can see the writer's willingness to stick with a position. The stock trading at $1.04 is a rather extreme case, and if you recall, this happens to be one of the few stocks that the Covered Writer suggested selling back in December of 2006. In fact . . . the Position Tracker below illustrates one such closed position in this same portfolio:

			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	Generated	31-Aug-07
22-Dec-05	Initial Stock Purchase		Buy 500 AGIX @ 18.639	($9,326.50)
			AtheroGenics Inc
22-Dec-05	Initial Call Option		Sell five '07 Jan $17.50 LEAPS @ 9.30	Rolled 12/28/06	$4,636.55
28-Dec-06	Buy Back & Roll Out		Buy five Jan $17.50 calls @ .40		($213.25)
28-Dec-06	Continued Trade		Sell five Jul $17.50 calls @ 4		$1,986.68
4-Jan-07	Buy Call to Close Option		Buy five Jul $17.50 calls @ 4.20		($2,113.25)
4-Jan-07	Sell Stock to Close Position		Sell 500 AGIX @ 9.5901	$4,787.90	($4,538.60)
12-Jan-01	Cash in Hand	-2.59%	Net Loss			($241.87)

The writer is not perfect! In this portfolio, there was significant exposure to AGIX . . . caused as you know by 'premium chasing', which you also know is now cautioned against. So . . . the reason for closing the position listed above was not out of fear or even the loss in value. It was closed because it never should have been opened in the first place! You should see that while this position was closed, the position used in today's example was left open . . . because there was (and still isn't) any fear or concern about the loss in value.
BACK to the EXAMPLE ... Okay . . . so here we have a 300 share position with a cost basis of $12.91 and three Jan $2.50 calls (thanks to the Buy Back & Lower transactions on April 7^th). What to do?
All comes down to know what one will do if the stock moves above a given strike price. Keep in mind, the best way to 'get back to even' with a stock is to Dollar Cost Average as you can see from this example. Today, the writer created some free cash by rolling another position in this portfolio. That cash, along with funds in the money market already, was used to purchase the 300 additional shares of stock.
The writer then closed the three Jan $2.50 calls and sold six contracts of the '09 Jan $7.50 LEAPS. So you do not have to scroll up, here is the data again:

Historical Data			Open Position
				Stock	Cash	Total Cash	Value as of
Date	Strategy	Status	Position	Investment	Generated	Generated	31-Aug-07
17-Nov-06	Initial Stock Purchase		Buy 300 AGIX @ 12.89	($3,874.00)			$801.00
	Current Price	$2.67	AtheroGenics Inc
17-Nov-06	Initial Call Option		Sell three Jan $12.50 calls @ 3.30		$979.21	Email 11/17
12-Dec-06	Buy Back & Roll Out		Buy three Jan $12.50 calls @ 2.10		($640.75)
12-Dec-06	Continued Trade		Sell three '08 Jan $12.50 LEAPS @ 6.50		$1,939.19	Email 12/12
3-Apr-07	Buy Back & Lower		Buy three '08 Jan $12.50 LEAPS @ .20		($70.75)
3-Apr-07	Interim Trade		Sell three '08 Jan $2.50 LEAPS @ .80		$229.24
31-Aug-07	Dollar Cost Averaging		Buy 300 AGIX @ 2.67	($808.00)			$801.00
$CA	$4,682.00	600 @ $7.80	Combined 600 share position
31-Aug-07	Combo BuyBack & Roll Out &Up		Buy three Jan $2.50 calls @ .65		($205.75)
31-Aug-07	Continued Trade		Sell six '09 Jan $7.50 LEAPS @ .80		$465.48

	Cash in Hand	57.58%				$2,695.87	BQ

Now look at this position . . . here is what the writer sees:

    The net cost basis for the 600 shares is now only $7.80.

    The new strike price is only thirty cents below the cost, at $7.50.

    The position (aka the investment), including today's purchase, has generated 57.58% of the investment.

    It is entirely possible, with the continued 'good news' that this stock could be trading above the $7.50 strike price in the future.

The last statement is forward looking, but given the fact that nobody knows . . . one has to realize that . . . nobody knows!
PLEASE NOTE: This happens to be one of those rare times when simply purchasing stock and holding it may pan out for other SysCW AGIX positions. For holdings with strike prices above $2.50, the writer may simply purchase the stock and not cover it! The reason is because the stock is so inexpensive. The risk is only the cost of the stock. Of course this requires the purchaser to be 'right', but for the reasons stated, swinging 'that' bat seems reasonable.
FYI . . . Today, August 31, 2007, AGIX closed at $2.74!

Please direct comments or questions to rlcoveru@eavecable.com.

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN AGIX 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!