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             CELG    Celgene Corporation  

THE TRADE  DATE :    January 24, 2006

THE STOCK:    Celgene Corporation engages in the discovery, development, and commercialization of therapies designed to treat cancer and immunological diseases through regulation of cellular, genomic, and proteomic targets.

THE STRATEGY:  Establish a new Initial Position.

THE THEORY:   The underlying philosophy of Systematic Covered Writing is the establishment of diversified Initial Positions where a math exercise indicates that the position will meet or exceed certain criteria.  For example, a covered writer could set goals of a return of 15% (when annualized) if the Initial Call Option is exercised,  and that the Initial Call Option will immediately generate 15% of the net investment in the stock. The writer knows that either the call option is going to be exercised with a reasonable back to cash profit or the option is going to expire with the writer keeping the premium from the sale of the call and the stock. If no other transactions are initiated by the covered writer, then one of these two events will happen. Given that Nobody Knows ... if the math works, and the position fits within the guidelines of a covered portfolio . . . just do it!

Systematic Covered Writing provides the 'what to do next' strategies to each of the possibilities.  A step by step guide to 'cash generation' using covered call option positions is exactly what SysCW is all about.

Stock Selection is extremely important to the Systematic Covered Writing process.  Listed below are some of the considerations used in selecting CELG as an investment to write a covered call.

• One of the more consistent indicators of stock value increasing in the foreseeable future is the stock split.  It normally occurs after a run-up in the value of the stock.  The split, while not increasing the value of the stock does reduce the price per share and allows more people to invest.  Normally, with the increased buyer interest, the stock will tend to return to the pre-split value over time. The table below will provide information on stock that will split in the month of February.

Company	Symbol	Split	Announcement Date	Effective Date
Celgene Corp	CELG	2:1	Dec 28	Feb 27

Splits calendars can be obtained by using a Google search with "Splits Calendar" as the subject or key word.

•  Insure that assets are allocated to various sectors for diversification.

•  Stock has an overall BUY rating as determined by selected brokers.

•  In general stocks that offer LEAP options are more favorable than one's that do not.

THE COMMENTARY: Systematic Covered Writing positions always begin with the purchase of 100 (or a multiple of 100) shares of stock, followed by the sale of a call option against that stock.  Within a portfolio, a number of factors are considered.  For example, it is important to invest funds in various sectors of the market.  This could be stated as maintaining a diversification of positions.  Once it is determined that a stock 'could' be used in a portfolio, a 'Math Exercise' is used to determine if it 'should' be in the portfolio.

These amounts can be calculated prior to investing a dime in a position.  Therein lies the key to the 'Math Exercise'.  The data below shows the results of a position that was established on March 9, 2005.  Keep in mind that the amounts have been adjusted to reflect a hypothetical transaction fee of $25.00.  Here is the data and the Math Exercise . . .

Date	Strategy		Position	Investment	Generated	Total
24-Jan-06	Initial Stock Purchase		Buy 100 CELG @ 67.058	(6,730.80)
			Celgene Corporation
24-Jan-06	Initial Call Option		Sell 07 Jan $ 65 LEAP @ 15.60		$1,535.00
						$1,535.00
		The Initial Position      MATH EXERCISE
Stock Purchase Price			$67.06		Option Bid		$15.60
Number of Shares			100		Strike Price		$65.00
Trade Entry Code			1.75		Expiration Code		13.75
Cash Generated			$1,535.00		Net Stock Investment		$6,730.80
Net Return if Called			$1,279.20		Annualized if Called*		19.01%
	Minimum Cash Required for Position				$5,195.80
Percentage Recovered w/Option **				22.81%	(Cash Generation if not Called.)
	* The Annualized  if called is computed by dividing the net return by the net investment, which is the return for the duration of the position.
	To 'annualize' … the return for the duration is divided by the duration (in months) and then multiplied by 12.
	** The net cash generated divided by the net cash invested.  This is the 'downside protection'.
	This is not a profit percentage.  You could call it the Stock Ownership 'Risk Reduction' Percentage.

Note:  If you desire an explanation of the Initial Position Math Exercise click MATH HELP.  Use your browser back page to return to this location.

What does the covered writer have?

1. One hundred (100) shares of CELG stock, which were purchased for a net investment of $6,730.80

2. The right to buy that stock was sold to someone (we don't know who) and they paid the covered writer $1,535.00 (net) in cash.

There are only two possible outcomes to this Initial Position (assuming the covered writer does nothing).

1. Either the stock is going to be sold (called) because the 2007 Jan $65 option is exercised.  When the position is established, the covered writer knows exactly what will be received, namely: (100 X $65 - $25 = $6,475.00)  This also means that when the position is established, the writer knows the net 'back to cash' potential if the call is exercised.  The writer paid $6,730.80 for the stock that will be sold for $6,475.00, which produces a net loss of $255.80 as far as the stock equity is concerned.

2. There is a net gain of $1,535.00 from the sale of the call.  Combine the loss above with this gain to obtain the 'net back to cash profit.   $1535 - $255.80= $1279.20   Notice that this is exactly what the 'Math Exercise' computed.

3. The only other possibility is the option will not be exercised!  This will happen if the stock is trading below $65 on the 3rd Friday in January 2007.  Could this happen?  Sure!  Will it?  Nobody knows ... but if it does, the covered writer will keep the 100 shares of CELG stock and all of the premium received from the sale of the call ($1,535.00), which just happens to be over 22.81% of the amount invested in the stock.

Guarantees are a 'no no' in the investment world.  It should be perfectly clear that one of the two events listed above will absolutely, positively take place.  The call option will either be exercised ... or it won't!  ....GUARANTEED!

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PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN CELG 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 suggesting 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 provide 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