More than just covered calls . . .

Systematic Covered Writing

Initial Position - The Math Exercise

This SysCW Initial Position was emailed to subscribers on the day the transactions were executed.  In order to know what to do in the future, it is important to understand what we did in the past.

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Initial Position         The Math Exercise  
                   
Established  AAPL with Jan $45 call      
6-Sep-05      
                     
Current Stock Price   $48.78   Current Option Bid $7.30    
                     
Number of Shares   100   Strike Price     $45.00    
                     
Trade Entry Code   9.25   Expiration Code   13.75    
                     
Cash Generated   $721.50   Stock Investment   $4,903.00    
                     
Return if Called   $293.50   Annualized  if Called (1) 15.96%   (A)  
                     
  Cash Required for Trade $4,181.50          
                     
Percentage Recovered w/Option * 14.72%   (B)        
                     
                     
* The net cash generated divided by the net cash invested.  This is the 'downside protection'.  
This is not a profit percentage.  It could be called the 'Stock Ownership Risk Reduction Percentage'.  
                     
   (1)  The Annualized percentage rate is calculated by dividing the 'Return if Called', by the duration of the    
      position in months, and then multiply the result by 12.              
                     
      It is important to realized that an assumption is being made that the same (or similar) transactions could be    
      executed over the course of a year.  There is no guarantee that this could be accomplished.  Also note that    
      the shorter the duration of the position, the more significant this caution becomes.        
                     
Comment:  The guidelines for establishing an Initial Position using Systematic Covered Writing, requires a minimum 
potential back to cash return percentage (A), if the option is exercised, coupled with a minimum percentage (B)    
of the original investment generated by selling the call option.  It is up to the writer to decide what these percentages  
should be.  The SysCW recommendation is for both of them to be at least 15%.