The following information is presented for educational purposes only!  This is an example of the strategies contained within the Systematic Covered Writing process or system.  Be advised of the TERMS OF USE, located at the bottom of this page.

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NTE    Nam Tai Electronics

THE TRADE  DATE :  January 31, 2006

THE STOCK:  Nam Tai Electronics. - (NTE) develops, makes and sells consumer electronic products, primarily to original equipment manufacturers, from its facilities in China.

THE STRATEGY:  The Initial Position

A portion of any balanced investment portfolio contains stocks from various sectors and corporate philosophies.  Systematic Covered Writing replaces the need for cash reserves and bond holdings by investment in stocks that have shown good performance in all market condition over a prolonged period.  When considering stocks to replace cash and bond holdings lower premiums can be expected but are oftentimes offset by a regular payment of dividends.  Over the past three years NTE has maintained a constant stock value (small trading range) and has paid a dividend of thirty-three dollars  per hundred shares each quarter.  Normally, with a dividend position a strike price is selected above the purchase price.  The goal is to be paid 'twice' for owning the same stock position.

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STOCK SELECTION

For each new position, there are a number of factors that can be considered. For this NTE position here is the covered writers rational:

•  The guidelines for an Initial Position are a premium that provides a 15% return if called, and 15% cash generation when the call is sold.  In this case, the dividend will bring the overall return to within the objectives of the portfolio.

•  This position increases the allocation to various sectors, therefore satisfying the need to diversify.

•  The stock has an overall BUY rating as determined by selected brokers. (Always remember that Nobody Knows.)

Date	Strategy		Position	Investment	Generated	Total
31 Jan 06	Initial Stock Purchase		Buy 100 NTE @ 23.40	(2,370.00)
			Nam Tai Electronics, Inc.
31 Jan 06	Initial Call Option		Sell Sep $25 call @ 1.70		$145.00
						$145.00
		The Initial Position      MATH EXERCISE
Stock Purchase Price			$23.45		Option Bid		$1.70
Number of Shares			100		Strike Price		$25.00
Trade Entry Code			2.00		Expiration Code		9.75
Cash Generated			$145.00		Net Stock Investment		$2,370.00
Net Return if Called			$250.00		Annualized if Called*		16.33%
	Minimum Cash Required for Position				$2,225.00
Percentage Recovered w/Option **				6.12%	(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 NTE stock, which were purchased for a net investment of $2,370.00

2. The right to buy that stock was sold to someone (we don't know who) and they paid the covered writer $145.00 (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 Sep$25 option is exercised.  When the position is established, the covered writer knows exactly what will be received, namely: (100 X $25 - $25 = $2475.00)  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 $2,370 for the stock that will be sold for $2,500 which produces a net gain of $125.00.  Note that the return will be increased by any dividends received during the holding period.

2. There is a net gain of $145 from the sale of the call.  The sale of the stock if called will also result in a gain as indicated above, bringing the total 'net back to cash profit to $270.00.  ($145 + $125= $270.00)   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 $25 on the 3rd Friday in September.  Could this happen?  Sure!  Will it?  Nobody knows ... but if it does, the covered writer will keep the 100 shares of NTE stock and the premium received from the sale of the call ($145.00), which just happens to be over 6.12% of the amount invested in the stock.  The writer is also taking into account that a dividend of $33.00 per quarter will be added to the cash generated by this position.

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 NTE 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