Systematic Covered Writing

    More than just covered calls . . .

Initial Position - The Math Exercise

This SysCW Initial Position was emailed to subscribers on the day the transactions were executed.  The process of Systematic Covered writing begins with the purchase of the underlying stock and the sale of the Initial Call Option. From that point on, the writer accepts the fact that ... nobody knows.

The Email Comments:

ADBE was added to Portfolio THREE this morning. Think piece of a puzzle…..

The Covered Writer

Additional Comments: 

Some tech stocks are more stable than other. With Acrobat Reader, ADBE falls into the stable variety. With this in mind, this position was established with a strike price above the current trading price of the stock.  In doing so the downside protection is reduced, but the return if called in increased.  Note the use of the LEAP option to generate as much cash as possible on day one.

       
  Systematic Covered Writing
  … more than just covered calls!
                       
                     
  Initial Position:    The Math Exercise  
  Position: 100   ADBE   With   Jan 2008   $40.00   LEAP
                       
  Adobe Systems Incorporated ADBE Jan 2008 40.0000 call    
                       
  Stock Symbol   ADBE   Call Symbol     .WAEAH  
                       
  Stock Purchase Price $38.840   Call Sold Price   $5.20  
                       
  Number of Shares   100   Call Strike Price    40.00  
                       
  Trade Entry Date   22-Jan-07   Expiration M & Y   1 2008  
                       
  Net Cash Generated   $511.75   Net Stock Investment $3,890.99  
                       
  Net Return if Called   $603.76   Annualized  if Called (1) 15.69%   (A)
                       
  Cash Required for Trade    $3,379.24          
                       
  Percentage Recovered w/Option * 13.15%   (B)        
                       
Days Until Expiration & Expire Date   361   18-Jan-08

 LB

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%. Remember this is a guideline not a hard fast rule. For diversification purposes, there may be times when it is necessary to hedge a little, which is exactly what took place with this position. 

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PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN ADBE 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: 02/07/07