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.  In order to know what to do in the future, it is important to understand what we did in the past.

The Email Comments:

Speaking of diversification . . . how about Olympic Steel, Inc. (ZEUS). The downside is a little on the light side and the stock does not offer LEAPS, but with a P/E ration of around $8 and a 52 week trading range of $21.03 - $39.49, this seems like a reasonable holding.
Time for a little metal in your portfolio?

The Covered Writer

Additional Comments:  As of February 6, 2007, ZEUS has appreciated to $27.65.  It's nice to see positions appreciate once they are established.  Keep in mind that one of the two events that will take place is expiration or assignment.  The Math Exercise determines the math for these two events.  For this stock, the position provided the writer with 11.81% downside protection, which so far has not been needed.  The math also tells the writer that if the stock is above $25 in July, the call will be exercised and the stock assigned.

One of these events will happen. If over the next few months, ZEUS continues to appreciate, it is possible that a new position will be established to takes it's place.  Remember, one of the reasons this stock was selected was diversification. For now . . . this one is looking good!

       
  Systematic Covered Writing
  … more than just covered calls!
                       
                     
  Initial Position:    The Math Exercise  
  Position: 100   ZEUS   With   Jul 2007   $25.00   Call
                       
  Olympic Steel, Inc.     ZEUS Jul 2007 25.0000 call    
                       
  Stock Symbol     ZEUS   Call Symbol     .SBQGE  
                       
  Stock Purchase Price $25.480   Call Sold Price   $3.10  
                       
  Number of Shares   100   Call Strike Price   $25.00  
                       
  Trade Entry Date   30-Jan-07   Expiration M & Y   7 2007  
                       
  Net Cash Generated   $301.75   Net Stock Investment $2,554.99  
                       
  Net Return if Called   $229.76   Annualized  if Called (1) 19.19%   (A)
                       
  Cash Required for Trade    $2,253.24          
                       
  Percentage Recovered w/Option * 11.81%   (B)        
                       
Days Until Expiration & Expire Date   171   20-Jul-07

 KB

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 ZEUS 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